Is last week's action in the markets the sign of something more ominous?
Of course there's the possibility a long-overdue more significant pullback may be starting. Time will tell. And the statement coming out Wednesday after the two-day meeting of the Fed could really set off the fireworks, especially if the Fed announces further tapering of bond buying.
But let's look again at the chart of the S&P 500 I show every now and then. The S&P 500 displays a one and one-half month to two month cycle pattern, and wouldn't you know it, it's been about one and a half months since the last cycle low. So far, this is nothing more than an on-schedule cyclical pullback.
Even the length of the pullback seems, so far, in line with previous pullbacks. And what is the average pullback in the S&P? It typically pulls back 3.8% over an average of 13.4 trading days.
The S&P 500 has been scraping resistance for a couple of weeks, and there are two days that could be considered the high of the most recent up-move – December 31st, which corresponds to the Dow Jones Industrial Average short-term high, or January 15th.
If the S&P's high of December 31st is used, it has been 16 trading days since the high was set and the S&P has pulled back 3.2%. In other words, about the distance and duration of the typical pullback. But if we use the S&P's other high set on January 15th, then we are only 6 trading days into this pullback – it could have a bit more to go. The NASDAQ Composite set a high on January 22nd, 3 trading days ago, so it may have quite a bit more to go. In case you are wondering…
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, including what to do right now after last week's market drop, type in www.markettamer.com/seasonal-forecaster
Copyright (C) 2014 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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