Let The Market Catch Its Breath:
I want to see the market pullback and here’s why- It is perfectly healthy to see the market pullback after a strong rally. Over the past few weeks S&P 500 has soared to fresh record highs and deserves a breather (which will set the stage for further gains down the road). Over at FindLeadingStocks.com, we began buying stocks in April and did the bulk of our buying in May- way before the move became “obvious.” In fact here is a snapshot of the FLS portfolio. As you can see, profits across the board:
The service owns: SPY +5.05%, AAPL +13.72%, SWKS +11.52%, XLV +2.13%, NFLX +20.17%, FB +5.62%, EA +0.68%
Shallow Pullbacks Are Healthy:
Just like we all need to sleep at the end of the day- the market needs to pullback after a strong move (up or down). As long as these pullbacks are relatively shallow in size (small % decline) and scope (they don’t drag on for months)- they are healthy and perfectly welcomed.
A Note Of Caution: Don’t Chase Stocks
A note of caution, careful chasing stocks up here after a big move (up or down). Over the long term you will do much better if you resist the “urge” to buy just because stocks already had a big move (a.k.a chasing). The market will pullback again- it is just a matter of when, not if. It now appears the market is in the early stages of that much needed pullback.
Longstanding readers of our work, know that it is important to objectively facts, not opinions. One of the best ways to analyze facts is to study price action. One tool is to study where the market is compared to its popular moving averages. The most popular moving average is the 50 day moving average (DMA). As a quick review, a simple moving average is a smooth line that is plotted on the chart that shows the closing price for the last X number of days. In this case, it would be the last 50 days. Another popular moving average is the longer term 200 DMA. That calculates the closing price over the last 200 days. The reason why a moving average is so important is because it is based on facts, not opinions. No one can dispute where the market closed at any given time, but everyone has an opinion on where the market should close in the future. A little trick of the trade is that the 50 DMA acts as a magnet for the market. When the market is extended (far away from the 50 dma) one should expect a near term correction to occur which would help work off the over bought or oversold conditions.
Take a look at the charts of the major averages (few attached) and see where they are compared to their respective 50 dma lines. Novice investors get caught buying AFTER a big move, but incorporating this tactic into your analysis will save you a lot of money. That is why a pullback would be healthy for the market.
S&P 500, Nasdaq 100 & Dow Jones Industrial Average: