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Heading Into Last Week of Quarter, Market Is at Key Inflection Point


If we start to see aggressive selling that takes the S&P 500 (INDEXSP:.INX) back below its recent breakout level around 1420, then you need to worry about ratcheting up your defenses.

MINYANVILLE ORIGINAL We came into last week about as extended to the upside as we've been at any point over the past three years and in desperate need of some sideways action to help the market digest some. Five days of range-bound action in the major indices gave us exactly that, and we're now at a key inflection point as we head into the last week of the quarter.
The bearish side here is particularly easy to understand, and as always, is quite compelling. Now that the afterglow of the central bank announcements has worn off, investors are starting to worry about the laundry list of negatives out there. We're facing the fiscal cliff, Taxmageddon, a probable European recession, high unemployment, and slowing global growth. Any number of problems threatens to take the wind out of the bulls' sails. Heck, if things are so rosy, then why did the Fed find it necessary to pull out all the stops a couple weeks ago?
Outside of some vague assertions about how "equities are undervalued," the bulls have a hard time coming up with equally persuasive arguments. However, since the low of 2009, the easiest mistake by far has been to underestimate just how sticky the action to the up can be. We all have our doubts about the long-term effects of all this money printing. We can't help worrying that the artificiality of these moves will suddenly be discovered and that the 'other shoe' will finally drop. However, anticipating that has proved to be fruitless.
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No positions in stocks mentioned.
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