Even Down Days Aren’t That Bad

Even bull markets take a break every once in a while….don’t they?  Several of my indicators I watch are at a point where corrections would normally take place.  If this was a normal market.  I think even the bulls have been surprised at how persistent this market has been since March 9th.  Today, the futures were down pretty hard, the dollar was rallying, China was down overnight, and gold was back under $1,000 an ounce. About an hour or two into the trading day, the market firmed up and tried to go into positive territory.  In fact, technology actually finished the day in the green (Dow Jones -41, S&P -3, & Nasdaq +5).  But, this was supposed to be a down day.  It’s time.  It’s overbought.  But, here we are with a mixed day.  Some stocks were up and some were down, gold rallied back, and the dollar sold off.  The internals weren’t great, but they weren’t horrible either (decliners beat advancers 2:1).  Just a mediocre day.  Definitely not a victory for the bears.  For those wishing for a down market or even worse counting on one, the worst thing that can happen for them is that the “overbought” condition works itself off by the market simply moving sideways.

But, let’s say we do get a correction in the 5% variety or so.  How do we know if it’ll be more?  How do we know it’s simply a correction in an upward trending market?  All we can do is monitor the current market, look at historical indicators, and make an assessment.  So, what historical markets am I talking about?  There’s a few things we know about market tops from a historical perspective.  Last week, we saw an expansion of new highs on the NYSE & the advance/decline line went to new highs.  Those usually peak about 4-6 months before a major top.  Secondly, the leading economic indicators continue to improve.  That’s highly correlated with stock prices.  Lastly, not many investors are interested in selling at these prices.  You need more supply and less demand to cause a major top for stock prices.  Therefore, I think any pullback will be a buying opportunity assuming you still have some cash sitting around.

In the short-term, you could also see some dollar strength, so it’s important to have some investments that benefit from a stronger dollar to balance out the portfolio like U.S. small caps, biotech (which is looking quite strong), & specific areas of technology.


I’ll be on CNBC Asia tomorrow evening (Tuesday at 6:10-6:30 p.m. CST).  In addition, I’ll be on Fox Business Wednesday morning at 8:10 a.m. & 8:30 a.m. CST.

This post published at www.karleggerss.com

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2 Responses to “Even Down Days Aren’t That Bad”

  1. 1 J George September 21, 2009 at 7:01 pm

    what do you think about the A123 ipo? other ipo’s coming out this week?

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