This isn’t an investor’s market. But it isn’t really a trader’s market, either.

That’s because we’re in a machine’s market — machines driven by high-frequency traders, algorithms and program-generated action.

It is difficult for investors and even traders to compete in a machine’s market. Just look at the year’s trading action to date.

Since Jan. 1, the S&P 500 is now lower by -2.65%. So how are you as an investor supposed to deal with this action besides pulling your hair out?

There are ways to evaluate the trading action to help you decide what to do next — whether it’s to buy, sell or hold on to your cash. In a moment, I’ll tell you how I determine just that.

First, let’s take a closer look at the recent volatile trading action in stocks …

Get Ready to Raise Some Cash

The S&P 500 peaked at 2,075.37 on Dec. 5 and then, by Dec. 16, it closed at 1,972.74.

This 102.63-point drop in 13 days was actually very typical.

Then the broader-market benchmark rose by 5.97% until Dec. 29, when it peaked at 2,090.57. Since then it has fallen to 2,000 with Thursdays close.

The duration of this drop is now 18 days. No longer quick, but by definition still a typical pullback. How so?

Since the end of 2012, there have been 10 pullbacks/corrections. They tend to take two forms:

• Quick drops of 3%-4% that last a week to two weeks, or

• Drops that take close to a month to complete and run 5%-8%.

The first December drop was 4.95% and it was quick and basically painless as the S&P 500 went to a higher high. The current drop is beginning to look like the 5%-8% type of drop. (These ranges are calculated on a closing basis.)

As such, you need to raise some more cash and get your shopping list of names to scoop up at bargain-level prices.

*** Before You Sell Your Stocks, Read This First …

However, according to my proprietary signals, this is not the time to move completely out of stocks.

Every Thursday night, I visit my Market Crash Indicators to see whether the danger signs are too great and it’s time to get out of the markets … or whether it makes sense to stay invested and, if so, how invested.

The Market Crash Indicators ’ five possible weightings are:

These indicators now suggest we should be at 50% invested this week. Last week the indicators had us at 75% invested.

Consider that, in mid-December during the pullback, the Market Crash Indicators suggested that we move to being 50% invested. This proved to be a good call.

So, with the indicators telling us to lighten up once again, we will be looking to follow their lead.

Here’s a little more history on the accuracy of these indicators …

Since I created these indicators in January 2011, this timing approach has returned 53.02% against the S&P 500 return of 38.34% through last Thursdays close.

The move to cash (0% invested) has only happened for 14 weeks in our 200 weeks of tracking, with most of it happening in 2011.

It takes a great deal of data to tell us that its time to move completely out of stocks. Despite the current volatile trading environment, the signals are telling us to stay long, but to be ready to scoop up bargains as they unveil themselves.

Bottom line: You should have some powder dry right now. My indicators are saying to be sure to keep it dry and get ready to put it to work.

***

Speaking of stocks, let’s check in on some of the ideas we’ve been following together during the past several weeks …

Our aggressive buy idea, Amazon (AMZN). which I also introduced to you as a possible tax-loss bounce candidate on Nov. 21, is still on the table.

It opened on that date at $324. Since then, it ran to a peak of $341.26. Now it is trading at $289.39.

Almost every new tech company has been hit hard. So, for the near term, we will continue following AMZN because it typically gets a strong seasonal run on holiday orders.

There is no reason to panic — at least not yet — I suggest putting a stop-loss of $276 on this name. This would limit losses to roughly 14.8%, but this downtrend may soon near its end.

*** The markets have gotten hit with a massive wave of selling these past few days, but my indicators continue to say this could be an impressive year for small caps.

In fact, the Russell 2000 is now back above all-key moving averages. However, It is now a tad below its September high of 1,183.85 at 1,168.24.

My expectation has been that the Russell 2000 would move above its September high sooner than later. This happened in late December but has now failed at that level.

However, subtle changes in favor of the Russell are taking place and we will continue to watch the small caps as they continue to outperform the S&P 500.

*** The U.S. dollar continues its ascent, with the Dollar Index trading up to 92.75 during Thursday’s session. The PowerShares DB U.S. Dollar Bullish ETF (UUP). which we’ve been following together, rose to close above $24 Thursday night.

*** While this upward action could become a problem for the stock market, it’s perplexing to see gold and UUP move higher at the same time.

But, we will take it because we like the yellow metal whether it’s as a hedge, a store of money and as a trade.

We started following the SPDR Gold Shares (GLD) at $126.53 last summer. GLD is now at $121.20, and the dollar remains key to gold and to this gold ETF.

*** In the current environment, it makes sense to remain patient. And when you do trade, buy the dips and sells the rips.

Clearly, December and now early January illustrate this has been a great strategy.

Cheers and Hit ’Em Straight,