[isatrader]

Isatrader and I were discussing yesterday about moving into a more defensive portfolio position now that the "Bear Confirmed" status on the moving average charts has been confirmed and a potential head and shoulders pattern is forming on the Dow charts. I'm curious to hear some feedback from the group on what going "defensive" in your portfolio means to you... Are you pulling money out of the market until we go back into a bull market or are you positioning your portfolio away from long positions and towards more shorts?

I think I am leaning towards the latter rather than pulling my funds out entirely but curious to know what others do.

I think it depends entirely on what part of the method you are using, as if you are mostly a long only investor like me with a basic execution only account buying actual shares for the long term, then I've just got to sit through any pullbacks in my stocks and let the stop losses do their jobs, and trim any stocks that breakdown into Stage 4, as the transactions fees are high, and you shouldn't trade your investor positions. So I have to hold my nerve and follow the investor method.

So I see it as a time to start researching stocks that have had strong early Stage 2 runs, in the strongest sectors, that are now beginning to pull back for the first time on profit taking etc, but continue to show good relative performance and that have contracting volume for possible pullback entries if the Stage 2 run reasserts itself.

However, if you are a short term trader then you can increase non-correlated exposure, decrease volatility, put tighter stops on longs, use trendline stops, sell leaders & laggards on breakdowns, reduce exposure to offensive sectors, initiate shorts in weak sectors etc. Although personally I'd be inclined to take a gradual approach to anything, as we are not in Stage 4 currently, just a developing Stage 3 under the surface of the market, which generally means volatility in both directions imo. So it's important to have a plan, so you don't do anything on impulse.