Dow 17,170 Has Arrived. Here’s What You Need to Do Now…

I’ve been warning you about it for weeks. And now it’s happened…

Dow 17,170.

I said that if the Dow fell through that key resistance level, look out below. It could be the beginning of a bigger drawdown.

Well, the Dow tumbled 358 points yesterday to end the day at 16,990. Don’t even ask about the S&P or Nasdaq. OK, fine. Down 2% and 3%, respectively.

So now that we’ve broken through Dow 17,170, is this the beginning of the end of this bull market? And what should you do today?

Here’s what I told you last Thursday:

“It doesn’t sound nearly as scary as a death cross. But I’m much more interested in the 17,170 level on the Dow than any death cross (it briefly broke below that mark early yesterday before its afternoon comeback). That’s the Dow’s February low—and where a potential Dow Theory sell signal would occur.

A Death Cross won’t kill the Dow. But a big break below 17,170 just might. If we lose it, it’ll be time to start planning for a graceful exit.

So forget about the death cross. And start thinking about Dow 17,170…”

I was talking about the Dow Theory sell signal, referenced in that passage. Dow Theory says U.S. markets are in an uptrend if either the Dow Jones Industrial Average or the transportation average breaks out to a new high – and the move is confirmed by the other average. If both the DJIA and the transports are moving higher, the market’s strong.

Well guess what: The industrials are crashing through their February lows. That’s a sell signal.

So is it time to head for the exits, gracefully or otherwise?

Listen…

Before you run around like a chicken with its head cut off, please understand that Dow Theory doesn’t tell us what individual stocks are going to beat the market or anything like that. It only spits out one of two “big picture” signals: buy or sell. And now that it’s flashing “sell” it’s time to get a lot more cautious. But it doesn’t mean we drop everything and run.

I’m always preaching not to trade out of emotion. And it’s days like yesterday that test your ability to trade with a clear mind. But that’s exactly when you need to keep your wits about you the most. Otherwise you make boneheaded decisions that cost you money.

We could be in for a lot of panic moves over the next several trading days. Let’s not make any ourselves.

We’ll be exiting some positions to be sure, but it’ll be more of a fighting withdraw to more defensible terrain than a panicked flight to the hills.

It’s true that most folks can’t handle the stock market roller coaster. They tend to get out when they should be buying—and buy when they should run screaming. That’s why Wall Street types like to call retail investors “dumb money”.

But even before yesterday’s bloodbath, these so-called dummies have been cashing out.

Take a look for yourself:

Take the Money and Run

Yes, it would appear that much like the other mini-crises we’ve experienced over the past few years, investors have once again opted to stow their hard earned cash in money market funds instead of the scary stock market.

“Barclays Capital says more than $90 billion has sought the shelter of money-market funds in the past six weeks,” Yahoo! Finance declares. “That’s roughly the same magnitude of flight response seen in other ‘risk-off’ spasms of the past four years, from the 2011 Euro debt crisis, the ‘fiscal cliff’ drama of 2012 and the ‘taper tantrum’ in 2013.”

So is the “dumb money” making the same stupid mistakes once again?

In light of yesterday’s big drop, maybe not…

We’ll go with the “herd” if it’s prudent. But we’ll be walking at our own pace, not running blindly. And we’ll keep our eyes peeled for opportunities others will miss because they’re too scared to look up.

So now the market is telling us it’s time to rip off the Band-Aid. Sometimes, following a trading plan is no fun at all. This is one of those times. But even though it’s time to sell, it’s never time to panic.

Regards,

Greg Guenthner
for The Daily Reckoning

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