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S&P 500 Likely to Drop in Second Quarter, but That's Not a Bad Thing


Historically, the second quarter has been short on fireworks, and an S&P pullback would shake out weaker hands.

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Since the March 2009 bottom, the S&P 500 (INDEXSP:.INX) has fallen three of the past five years during the second quarter (except for 2009 and 2013, and both of those were exceptionally strong years). It is still early for 2014, but so far, the second quarter is on track to follow recent precedent. It is important to note that after brief selling during the second quarter, in every case, the market hit new highs almost immediately.
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Please keep in mind that this is the definition of a bull market (higher highs and higher lows), and eventually, this bull market will end. But until it does, here are the facts. The S&P 500 hit a new all-time high two trading days ago, is less than 2.5% below its record high, and is still above its upward sloping 50-day moving average line. The Nasdaq Composite (INDEXNASDAQ:.IXIC), which is the weakest of the major averages, is only down 6% below its multi-year high. Remember that the S&P hasn't had a 10% pullback in nearly two years, and I welcome a nice pullback at some point to shake out the weaker hands. Understanding how the market behaves is very important to beating it.
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