Now that we have a sell signal from Market Breadth Ratios, what should we to do with our stock holdings?

We got a sell signal from Market Breadth Ratios, though the long term uptrend is still intact.

In times like this, what should we to do with our stock holdings?

Answer: This is the time to sell stocks from your holdings where the price action is not performing well, in other words the price action is showing weakness.

Some of the sell rules are:

a.       The price has gone 8% below buy price.

b.      The stock price has broken down on high volume.

c.       The stock price is forming a “wedge”. A “wedge” pattern is when the stock price goes down, then tries to rally up but the rally is anemic.

d.      If the stock price has had a long advance and then closes below 10-week moving average and stays there for 8 to 9 consecutive weeks.

Money from selling these stocks should be invested in the remaining stocks in your portfolio when the Market Breadth Ratio gives a buy signal again.

The thing to remember is that a short term correction can turn into a long term correction. The technique employed here to weed out weak stocks and not put that cash back into remaining stocks, till we get a buy signal from Market Breadth Ratios. This methodology will have the effect of getting us more and more into cash as the short term correction proceeds. In case the short term correction turns into a long term correction or a bear market, we will already be holding some cash and thus not get a big downside hit to our portfolio.