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The Pause That Refreshes ? April 21, 2012

Posted by Tom in Thoughts.
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No doubt that you’ve noticed this market pulling back from its steady rise over the past 6 months, if not longer.  But this is expected and actually good.  The question now is whether this is a natural pause or worse.  I thought it good to take a longer term view right here.  Below is the S&P 500 index ETF (SPY) on a weekly chart, over the past 2 years.

chart courtesy of MetaStock; used with permission

Note the Price Momentum above the price bars and Volume below.  I thought it interesting to draw some trend lines on the chart to support a point.  We note that this may be a critical time, since Price Momentum is falling and the chart is testing the lower trend line. (I like to draw trend lines on longer term charts with a minimum of 3 touches, and from points where I see the new trend has established; not necessarily from the lowest point in the previous move.  IMHO)

We should be “OK” if this market can stay above its previous low of 1350 ish on the actual index.  But care is needed, momentum is falling and we are close to breaking that trend.

How’s the overall market holding up?  So far, so good.  On the broader S&P 1500 stocks we see 33% are in Accumulation (buying pressure), 40% in Distribution (selling pressure) and the remainder Neutral.  So far, pretty healthy.

chart & table courtesy of HighGrowthStock.com; used with permission.

The table below shows the top 10 sectors.  Interesting to note that they tend to be rather defensive at the moment.

Keep an eye on things in here, not to worry yet, but the “pause” could change into something larger.  And a big news item could just do that, and quickly, since the market is on the edge here.  Have a good week and leave me comments by clicking the link at the top of this post.  Cheers !     …….. Tom  ……..

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