Good Time To Hedge Bullish Positions

Market Summary

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend. The updated chart below shows that, technically the stock market remains extremely overbought. It might be difficult for the major indexes to keep pushing higher until the overbought condition is absorbed. Also the chart highlights that the technical momentum indicator is stuck in neutral even as stocks continue climbing higher on a wall of worry. Putting hedges in place to protect long bullish positions is smart move in case the market follows through on the overbought technical signal.

Below is the S&P Sector ETF graph highlighting performance results over the last month. You can see in the graph below how technology shares have been the outstanding performer. The major concern is that the market advance is not broad-based. Tech shares leading the market higher are not dragging along the other S&P sectors which might indicate underlying market weakness. The smart move is hedge long-term bullish trades to protect gains in the event of a market pullback.

By Gregory Clay

Investment Strategist

Click here to Connect on LinkedIn

gregoryclay@nellaadvisors.com

P.S. click on http://www.theoptionplayer.com/ to sign up for a free trading newsletter