Last week our short-term technical indicators triggered a short-term sell signal, and this week it looks like that pullback is underway.
Wall Street and the big program-trading firms have managed to hold the Dow up more than the rest of the market, helping keep the majority of investors (who only look at the Dow as an indication of market strength), happy.
However, the Dow was down 150 points intraday yesterday and closed down 106 points, while the NYSE Composite, which topped out two weeks ago, rallied back to a lower short-term high last week and declined yesterday to a lower low.
There were more than enough catalysts blamed for the decline yesterday, not the least of which was the further plunge in the price of oil.
There was also the report that China’s exports in November missed expectations , rising 4.7% versus the consensus forecast of 8%. And that Japan’s economy may be mired in a deeper recession than thought. Its previously reported 3rd quarter contraction of negative 1.6%, was revised down to 1.9%.
But we believe the short-term overbought condition of the market and short-term sell signals was the main catalyst and will result in a pullback regardless of surrounding conditions.
Also involved may be:
Short-term market patterns.
The ‘monthly strength period’, the last two trading days of a month and the first four trading days of the next month, was due to end last Thursday.
The next pattern is for the week after the monthly strength period to be negative. Also, the week before the monthly expirations week, which this week is, also tends to be negative.
The big question is whether it will be just a brief pullback to the 50-day moving averages, or the beginning of something worse.
To read my weekend newspaper column click here: Are We in Another 1990s Style Super Bull Market-
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Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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