The Current Pullback – Cause for Concern?

We are going to take Mr. Peabody's WABAC machine^*.

* I have nostalgia for a time where things were a little simpler and the world made more sense to me.

But we won't go far. We're only going back to August 23rd of this year. In that day's reflections, I wrote, in reference to the S&P 500's chart, “possible cycle low and buy signal, and if it forms here it would be right on schedule, in view of recent cycles. The S&P also is sitting on the bottom of the Bollinger Bands, from which it has rebounded nicely the five or so times it previously touched the bottom.”

I showed the following chart, with 5 previous short-term cycle lows, clearly identified by touches of the bottom of the Bollinger Bands and Stochastics lows. With another touch of the bottom of the Bollinger Bands, and another likely Stochastics low-and-buy signal, I suggested another cycle low may have formed.

As the chart showed, the S&P 500, which is a pretty good representative of the overall market, was, at least in recent history, setting regular lows every 1.5 to 2 months.  I put a question mark on the chart to show this new low had not yet proven itself.

So how did things turn out? The S&P 500 spent another week setting a slightly lower low (although, the Stochastic set a higher low) before rebounding. It was pretty much right on schedule.

And now? We're not quite at the same point yet, but so far, there is nothing to indicate the market is moving to anything other than the normal ebbs-and-flows of crowd psychology. Volume on most down-days is staying at or below average.

While there are politicians and media trying to rile up Wall Street about the current partial government shutdown, to this point stocks are trading rather predictably. As I stated in a recent article, the institutional traders more than likely want a chance to spice up their year-end returns. The strong seasonal patterns in many top-name stocks strongly suggests this frequently occurs this time of year.

Be patient and keep an eye on the stocks you are familiar with. A lot of good stocks are cycling down, setting up what may be nice clean overbought Stochastics buy signals. When the shutdown and debt-limit situation gets resolved (or pushed off into the future), the markets may take off.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, type in www.markettamer.com/seasonal-forecaster

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2013 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

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