Written by: Angela Akers

Relevant information causes stock prices to rise and fall. Relevant information is any news that causes the perceived value of a stock to rise or fall.

There was a barrage of relevant information this week. Fed Chair Powell’s speech Monday noted the economy is strong and that “significant progress” has been made toward achieving maximum employment and stable prices over the past two years. Stocks rose moderately in celebration as investors took this as a sign that the Fed would continue their path of interest rate cuts.

Tuesday, tensions between Iran and Israel escalated following Iran’s missile strike and investors dumped stocks and bonds on the broad market and flocked to oil and defense related stocks. To add to that, the International Longshoremen’s Association began their strike, which caused concern that inflation might heat up in the future. Higher inflation leads to lower valuations and that’s not good.

Private payrolls came in much higher-than-expected Wednesday, which pointed to the likelihood that Friday’s September jobs report would be good. And boy was it! Economists expected just 150,000 jobs and unemployment to remain at 4.2%. But Friday’s jobs report showed that the labor market added 254,000 payrolls and unemployment ticked lower, to 4.1%. Additionally, news hit that the port strike has been suspended.

The market shot up at the open, but the rally soon began to fade before trading in erratic fashion for the rest of the day. What caused that to happen? Well, in my opinion, the good news bears took over. Investors came to believe the blockbuster jobs report and the removal of the threat of high inflation may alter the Fed’s path of lowering interest rates at their next two meetings.

Our Color Guard shows that the Primary Wave turned Dn yesterday and, despite upside action, remained Dn today. While we will still need to see the Price of the VectorVest Composite move lower for one more five-day trading period, and the BSR close below 1.00 to confirm the downtrend, it may be time to start thinking about and implementing some defensive strategies to protect the profits you’ve achieved during the market’s rally from the early August lows.

There are many simple ways that you can do this. For example, you might consider tightening your stops or selling your stocks outright to lock in and protect your unrealized gains. If you’re familiar with options, you may also consider buying Put Options, Selling Covered Calls, executing a Collar Option or buying index Put Options. Other defensive actions you might consider are hedging your portfolio by selling stocks short or by buying Contra ETFs.

More importantly though, I wouldn’t add to my long positions or buy any new long positions until the Color Guard signals that it’s OK to do so. This will happen with the reappearance of green lights in the Price column and subsequent follow through on the next trading day.

While our valuation model says that lower inflation leads to higher valuation, it also says that higher interest rates lead to lower valuation. Today’s action implies that the danger of continued high interest rates may well be a good enough reason to sell for The Good News Bears.

PS: Dr. Glenn will be giving you an excellent presentation tonight on Contra ETFs to help you prepare your portfolio in the event that downside movement continues.

Want These Types of Insights at Your Fingertips so You Can Win More Trades?

Use VectorVest to analyze any stock free. VectorVest is the only stock analysis tool and portfolio management system that analyzes, ranks and graphs over 18,000 stocks each day for value, safety, and timing and gives a clear buy, sell or hold rating on every stock, every day.

Before you invest, check VectorVest! Click here to ANALYZE ANY STOCK FREE and see our system in action!