Caution is needed

February was one of the best months for the market in recent years. The indexes posted huge run-ups for the month, with the Nasdaq gaining 7.1 percent, the Dow 5.5 and the S&P 500 5.6. But as I mentioned here, in the last week the major averages didn’t make much progress. After these kind of moves, it is normal to see some pausing. However, last Friday brought a distribution day to the count and we witnessed some selling in rising volume. With the absence of any decent catalyst and with the release of the all-important jobs data on Friday I am now a bit more bearish in the short term and thus a more cautious approach is needed. Likely this week we will continuing going sideways or a pullback could be in the horizon. This doesn’t sound like the start of a new correction (although it is too early to be sure) but a 3-4 percent would be good for the market to reset some setups. The small-cap S&P 600 was up 6.4 percent in February and will also be more prone to some sort of pullback. With all that in mind, act a bit more defensive, take some profits and tighten your stops. Mondays are usually bad days for the market so don’t expect too much comprehension.

Below is a daily chart of the S&P 500.



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