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business newsInvestors: There's Increased Probability of a Correction
Given this potential, here are the warning signs to watch for.
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The talk of the town last week with most TV pundits was the Dow Jones Industrial Average potentially reaching a new high since late 2008 (before the financial debacle). For all intents and purposes this is actually not technically trivial (double negative?). With all four sisters approaching 2011’s high (upslope resistance as for the NDX; see last week’s article, The Risk Trade Is On), investors must be aware of an increase in probability of a correction, considering a 10%-plus move since the November 2011 lows. Add this to another full week of earnings; a sharper eye this week would only be prudent.
Understanding this potential, where is the warning sign? Let’s take a gander…
Click to enlarge
Since the break above the bear-trend resistance (late December 2011), the SPX has been following a very steep short-term uptrend. However, on Thursday it produced its first sign of weakness: a shooting-star (gap higher reversal day at an intermediate-term resistance point). Still, one ingredient does not make a cake. The short-term trend is the key. In this case, the SPX continues to trade above it. If and when broken, and depending on your portfolio tolerance, this is where the first correction is likely to occur. As for tolerance question, I also placed the most likely retracement point (~1,260, the 200-Day Moving Average). This also happens to be a 38.2% Fibonacci retracement from the November 2011 lows.
If I were to give one word of advice at this juncture it would be this:
Don’t anticipate the move. Wait for the market to tell you which direction it will go and act accordingly. As my firm always says, it’s better to be late and right, than early and wrong.
We hope this helped.
Editor's Note: Read more at Tuttle Asset Management.
Twitter: @TAM_News
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