Major Distribution Hitting The Market

Over the past two weeks, we have started to see some major distribution hit the market. In late September, I was very bullish on growth stocks as I believed stocks like Tesla and NVidia looked phenomenal, and the Russell 2000 looked like it was getting ready for a strong uptrend. A rally did occur as the market charged upward from mid-October to mid-November. Stocks such as RBLX, ABNB, and Unity blasted higher and looked like they were just getting started on major bull runs.

Things started to change last week, however, as the market showed a distinct change of character. First, I was stopped out of ABNB at breakeven which really surprised me since I was anticipating much higher prices. I sold RBLX as it became extended from its' 10-day moving average and reversed. Last week, I was quickly stopped out of SEDG as it reversed right after breaking out. For the first time in quite a while, I found myself forced into cash. This shocked me since I was suspecting a strong uptrend and was not planning to be in cash. However, when the market stops me out, or stocks start to reverse, I always listen to what the market is telling me.

While December is usually a very strong month for the market, we have seen some massive distribution over the past two weeks. The Russell 2000 chart looks terrible with seven distribution days over the last ten sessions.

The IBD 50 Index (FFTY) lost its' 200-day moving average today on above average volume.

The Nasdaq Composite has seen three distribution days pile up over the past two weeks while the S&P 500 lost its' 50-day moving average on heavy volume today.

All of this leads to one conclusion for me: cash is a position. There is no need to be a hero here. The market may bottom this week or it may head much lower. It could do neither and just chop around for the next month. Either way, this is not a time to force trades or abandon risk management. The key is to listen to what the market is telling you and wait for the moments went conditions are overtly bullish, which is clearly not now. Remember, we want to put the odds in our favor when trading and trying to fight a downtrading market or looking for a stock up two percent in a sea of red is a fool's errand. We must have the flexibility, patience, and discipline to wait for the times when the market is hot.

And one last thing-keep on watch for stocks holding up well. ZIM, NVDA, TSLA, COIN, SI, ENPH, SEDG, U, LCID, TTD, and RBLX are all stocks I believe offer enormous potential in the future. However, the timing has to be right, and there's no merit in trying to force positions here with the market under distribution.

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