Chris Rowe

WARNING: The Market is Headed Off a Cliff

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The market is already selling off heavily, but you may not be able to see it if you're not following the "internal market." (Learn more about what drives the internal market.)

To most stock market "civilians," it will appear that the Dow Jones Industrial Average (DJI), with all the volatility over the last few trading sessions, has only lost about 100 points.

Big deal, right? 

But if you're in-the-know, then you understand that the amount of market value the major indices have lost isn't what's important here. What's important are the key price points (i.e., support levels) that so many stocks have broken through!

Market is Ready for a Sell-off

Last week, 11% of all stocks (net) on the New York Stock Exchange broke through support levels, putting them on sell signals. 

I'll make the importance of this event very simple. 

All you have to understand is that, if a stock declines and breaks through a key level, the stock is much more likely to continue lower (because the big buyers who were supporting the price of the stock are no longer there, or the sellers had more stock for sale than buyers had to buy).

Let's say XYZ stock is trading at $50.50 and the key support level is at $50. If XYZ stock closes at $49.25 (75 cents below the support level), then it is much more likely to continue lower than to regain enough demand to reverse and continue its uptrend. 

Even though the stock only declined by $1.25 (or 2.4%), the whole picture changed dramatically!

So what I'm telling you today is this: After being very overbought (where most of the money that institutions had to buy stock with has already been used for buying stocks, and the demand side has used all its "ammo," or is "fully invested"), the market has now reversed lower. As they take profits, when everyone is "fully invested," there isn't much money to step in and buy more.

Don't be a Bull-Headed Fool

The selling has begun and we know that 11% (net) of NYSE stocks broke through those key support levels just like the "XYZ stock" example above. Sure, the market only moved slightly lower, but the real picture is stocks are poised to drop.

Then there is the fundamental picture that my partner Ron Ianieri explained in his Tycoon Report article on Oct. 26.

Out of the 46 Sector Hunter Broad Sectors, only seven were showing institutional buying. The others showed institutions starting to dump the stocks within those other 39 sectors. 

When we see a high-probability situation, we trade it. It doesn't matter what the outcome is. It doesn't matter if we are "wrong" or "right" about the actual outcome. Nobody can know for sure what the future holds. But what we CAN determine is when we are looking at a high-probability scenario. 

If we play high-probability scenarios every single time, we are going to be "successful" most of the time, and "unsuccessful" some of the time. Furthermore, if you are NOT playing the high-probability scenarios, you don't belong in the market.

Never use the last outcome in today's decision-making process. In other words, don't say: "Well, we were 'wrong' in July about continued downside, so even though odds strongly favor a decline again, I won't listen this time."