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November 14, 2010

|Includes: Apple Inc. (AAPL), BIDU, FFIV, GOOG, NFLX, PCLN, ROVI

Last week was an interesting one.  While 11/9 had clear-cut distribution on all the indexes, it’s tough for me to look at 11/11 as a distribution day for the Nasdaq, given that the index closed at the very top of its range and most of the increase in volume was due to CSCO; also, none of the other indexes confirmed the Nasdaq’s selling.  Most of the leaders held up well too.  So, to my mind, 11/11 wasn’t a distribution day for any index.  That being said, investors were indeed in a selling mood on 11/12, yet, going by the volume totals on the NYSE, it would appear that mood wasn’t quite as emphatic as the mood to buy on 11/10.  So while I consider 11/12 to be a bona fide distribution day, it didn’t demonstrate the kind of morbid selling that would warrant an across-the-board reduction in stock exposure.  At least not yet.  Still, the Nasdaq’s action on 11/12 was cut and dry: volume not only came in higher than on 11/10 and was above-average, but a few leading stocks got hit as well.  That’s “true” distribution, even if volume came in lower than the previous session’s inflated totals.     

As a side note, the Russell 2K’s volume came in well below average on Friday, even though it was the hardest hit index in terms of percentage loss.  I tend to think that if funds were truly dumping stock the small caps would’ve seen especially high volume.  This could still happen, of course, but right now this pullback looks pretty tame.   

I guess the point I’m trying to make is that, as it stands now, the evidence doesn’t demand much in the way of drastic action, but it does call for some caution.  If price action were to continue to deteriorate then it might be wise to reduce exposure.  Just how much depends on the market’s behavior and one’s risk tolerance.  Your best bet, however, is to refrain from anticipating the market's next move.  The price/volume action of your stocks is all you ever need.  Everything else, the news, financial media, QE2, sovereign debt, etc., is superfluous.  

It’s at times like these that I think of the market as being like the woman you live with.  After a decade of cohabitation with the woman I love, I consider myself something of an expert on how to survive under the same roof with the fairer sex.  These hard-earned lessons I’ve learned serve me well in the market too.  The market is not unlike a woman in these respects: it's best not to think too much and to simply wait to be told what to do.  This is harder than it sounds but to the extent that you obey these rules the better off you’ll be.      

On an administrative note, I've recently launched my "model" via covestor: ; One can easily "mirror" my returns by opening an account:; It's been a half-way decent year so far.  As of 11/11, my portfolio
is up 149.12%.  Here's to finishing the year strong....