Feb 16, 2012

3 Reasons Why Spx is Due for a Pullback

Technically the market has broken the uptrend started with the low of 11/25 and tested again on 12/20 and 1/30. The 14-day RSI has also just come off overbought levels thus triggering a sell signal.

Individual investors are more bullish than anytime during the past 6 months. The weekly sentiment survey by the American Association of Individual Investors shows 51% bullish, which is higher than at any time going back until at least the 9/22 survey. Having retail involvement is generally sign of a healthy market, except that
at extreme levels caution is advised.

The blow-off top in that market darling AAPL, followed by a subsequent lower daily close does not augur well. The fundamental valuation of the company aside, when the leaders whip around, the whole market shudders.

Lastly in case this sounds all doom and gloom, the coming pullback would likely be a good buying opportunity but as always it is all about the timing.

(For more WhatIf posts, click here)

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