In summary, we expect that this correction will magnify, even if it is short-lived. We say this despite the seemingly optimistic snap-back rally today (November 8). Today’s rally seems to be spurred by the unemployment report, and by bottom-fishers. But we expect selling to return next week. A probe below support at 1730 would likely cause SPX to test the 1700-1710 area. That would certainly cuase some consternation amongst the recently complacent bullish community. But unless the term structure of the VIX futures turns negative, this is likely just a correction and not the beginning of a bear market.
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The S&P 500, as well as the NYSE Composite, Nasdaq and Russell 2000, are again at the overhead trendline resistance that halted their last three short-term rallies. They are overbought above their short-term 50-day moving averages to a degree that also suggests a short-term top is at hand. And investor sentiment as measured by the weekly poll of its members by the American Association of Individual Investors (AAII) jumped to 49.2% bullish and only 17.6% bearish this week, entering the warning zone of too much optimism, perhaps due for a pullback to reality. The CEO was Terry Lundgren of Macy's (M), the nation's second-largest department store chain, with 850 outlets throughout the U.S. and 90% of the company's revenues coming from those Macy's stores, which serve middle-class Americans. (High-end retailer Bloomingdale's accounts for 10% of sales.) I generally find Mark's views insightful and see nothing wrong with buying fairly cheap U.S. large caps. But this is advice, not Ned Davis Research's (the firm has a more positive view on equities). I do not believe that the indicator is flashing a red 'SELL' signal. Actually, I believe that the indicator is likely to fall back into safer territory in the coming months even in the absence of market declines: But what you do with the thousand is as important as what you don't do. For a beginning investor, one of the most important goals should be to keep costs low, diversify and invest in line with your personal risk tolerance. Now that stocks have finally started to pull back from record highs investors are probably asking themselves, 'is this a standard correction or something more than that?' I believe we are in the process of forming a major top and here's why: The purpose of this article is to help traders and investors understand the clues and psychological characteristics that often precede a market crash. No one can predict the day or time, but if you pay attention, you can recognize the signals. It is important for strength to persist, and for reflation expectations to continue to turn up. Should our inflation rotation models sense a change in underlying tone, there is a chance we rotate into bonds. It is for this reason that next week is pivotal. Historically, emerging markets have had many 5%+ weekly up moves. As algorithms begin noticing an end to US momentum and a start to emerging market strength, it will likely become a self-fulfilling momentum trade that very few will see coming. Bullish sentiment is rampant, the CBOE Volatility index (VXX) is bumping along its recent lows, and price/earnings ratios for stocks are entering high, if not nosebleed, altitudes. That makes things ripe for a decent correction after a surprisingly strong summer rally. The revival of the stock market over the last several weeks has been most impressive. After dropping by over -7% from May 22 to June 24, stocks as measured by the S&P 500 Index (SPY) suddenly reversed higher and have spent hardly a moment looking back. In the 18 trading days since the June 24 bottom, stocks have advanced in 15 of these sessions. This is an incredible 83% winning percentage for a market that appeared on the brink of cascading lower when the latest rally got underway. |
It's always a good idea to keep some good articles, at least I think they are good for reference, so I can go back and read them later.
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