Aaron Task at Yahoo! Tech Ticker has a post of the 5 Keys to the Market, from Todd Harrison, CEO of Minyanville.com.

The money quote is near the bottom:

“Given these crosscurrents, Harrison’s advice for traders is to keep a tight leash on stops and be extra focused on risk management.”

Here’s why Harrison thinks you should keep a close eye on your stops:

Treasury yields.

The 10-year yield has been in a range of 2.7% – 3.78% from Jan – June 2009. This is a reflection on how some traders view the risk of future inflation. The sentiment seems to swing daily between high risk of inflation and high risk of deflation.

New Supply of Stock.

Some investors are worried that the rally from March lows was synthetic and manufactured. I personally believe it was a rebound from over sold to the “new normal”, but what do I know?

Valuations.

Harrison points out that despite the talk of how “cheap” the market is, forward P/E ratios are now close to the October 2007 highs.

Volatility.

And my own bonus reason for keeping an eye on your stops – the S&P 500 has been in a fairly narrow range over the past 6 months, as evidenced by this chart:

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Note: This chart represents the value of the iShares S&P 500 Growth Index ETF (IVW), but it tracks very closely to the S&P 500.

SO, as you can see, there are number of mixed signals and contradictory information about the markets now. Because of this, it’s important to watch your stops and make sure you’re not to tight or too lose, or you risk losing more than you should or missing out on any bull rushes.

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