Four consecutive down days (but a good January) and stop loss disciplines

Stocks going down are not normally good news for investors. The DJIA has declined during six of the last seven sessions. In reality, some down days after a good run-up make a rally sustainable. That might just be what is occurring now.

The good news is that stocks have fallen in small increments. Whenever the DJIA sees a large intraday drop, buyers are enticed back and stocks get bid back up. Clearly, money is flowing into stocks. Some of the funds flow is due to the promise of long term easy money.

If this is a period of consolidation, then the DJIA has more room to fall. Bulls should not start to get nervous until a retracement takes the DJIA back to 12,400. 12,400 is a noteworthy support level.

The Dow Jones industrial average rose 3.4 percent in January. The broad Standard & Poor's 500 gained 4.4 percent. These are the best January performances for both indexes since 1997.

For the day, The Dow Jones industrial average finished down 20.81 points, or 0.2 percent, at 12,632.91 on Tuesday. Up volume and down volume were almost evenly matched. Surprisingly, advancers beat out decliners by almost a margin of three to two. This is a significant statistic which indicates that buyers still lurk and stocks are being accumulated.

The benchmark 10-year Treasury yield dipped to 1.795 percent. That is the lowest yield for almost four months. The VIX is still below twenty at 19.4.

Corporate results have not been stellar so far. Despite 'ho-hum' earnings, investors have still bought stocks. Most importantly, investors have tended to ignore bad news, especially from Europe.

Stocks

RSH: Some months ago, I got RSH horribly wrong. I was looking for support to hold RSH above twelve. And look at the stock now – USD 7.2! Luckily, I cut my losses before Tuesday's earnings due to a stop loss discipline. Stop loss disciplines are key to growing a portfolios value – especially when holding stocks with vulnerable business models. RSH is back at five year lows and can only be viewed (or purchased) from the prism of a turnaround story; a risky play and only for the believers.

XOM: Taking a position in a company prior to earnings is always a risky proposition. Hence, when I sold short XOM I suggested it be part of a 'pair' trade including going long XLE or the energy ETF. Following Tuesday's earnings from XOM, the trade seems to be working so far. But as the pair trade risk is manageable, I expect to let the two positions run for a little longer.

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