Is This A Medium Term Pullback?

Up through the middle of last week, the pullback in the major indexes was little more than a likely short-term cyclical low. The last two days of the week changed that. Heavy selling quickly came in on Thursday and Friday.

To sum it up, the S&P 500 has dropped 113 points, or 5.6%, from the September 19th high about 4 weeks ago. The S&P 500 is back to where it was in May, when it broke out of a three month trading range.

I've covered the short-term cyclical track record of the S&P 500 in recent newsletters. How about a medium term pullback? What is the S&P's track record?

There have been 4-week intermediate term pullbacks, but the average lasts about 12 weeks and about 7+%.

S&P 500 weekly Stochastics are no longer in the overbought range, but remain in the upper half of the chart. This pullback is probably a larger, medium-term pullback, and is not only overdue, but should go further in both time and distance in order to fit the track record.

However, there are a few things working against a bigger pullback. Fall, especially coming out of October, is typically a strongly positive time for the market, as institutions work to make their year-end results look as good as possible. The S&P 500 has pulled back right to its 200-day moving average – if it holds, institutions may see this as a good buying spot.

Also, right now, there aren't too many alternatives. Investment housing is becoming overpriced, interest rates are near zero, bonds are risky, precious metals are lousy. What is an investor to do, except to throw money into the stock market as soon as a pullback gives lower prices and better P/E's?

We've had a few open positions hit stop losses and trailing stops recently. However, if you take all the closed trades since the breakout in late May, and followed my money management strategy (1/15th of the starting account balance on each trade, or 1/30th for each ‘half-trade', and implement the stop-losses and trailing-stops I recommend), your account would be down only 1.6%. And that is before including the current open positions that are showing gains and may take off on any market rebound.

In today's Seasonal Forecaster newsletter I cover a very conservative trade setup that could return 5.7% over the next 6 weeks (a 50% annualized rate of return), but still keep us ‘in the game' for any rebound.

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, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

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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