Byron Wein was on CNBC this week saying investors were euphoric and a market correction was right around the corner. “Euphoria” and “correction” are strong words, but the case for a near-term pullback isn’t a bad one at all.
KEY LEVELS
For now, I’m watching the 50-day simple moving averages for the Dow, S&P 500 and Nasdaq Composite. That’s the line in the sand as far as I’m concerned.
As of Thursday’s close, a pullback of nearly 4% of would take the Dow and S&P 500 down to their 50-day lines at 13,410 and 1,454 respectively. A 3% pullback for the Nasdaq would take it down to its 50-day line. It would take some fairly dire market headlines for indices to break below their 50-day lines with conviction. Frankly, I just don’t see it.
I’ve heard plenty of market pros making the case on why a market pullback is imminent. I’ve heard about increased volatility as evidenced by wide-and-loose intraday price swings in the major averages in recent days. After a big run for a stock or an index, price action like this can often mark a top. I’ve also heard about lukewarm corporate earnings, sluggish economic growth and that Europe isn’t out of the woods yet. Oh, and don’t forget about recent data from Hulbert Financial Digest that show newsletter writers are recommending record exposure to stocks. Bears love this data because it’s contrarian.
THE DOLLAR IS KEY
You know what I’m most concerned about at this point? Recent strength in the U.S. Dollar.
The U.S. Dollar Index jumped 0.6% Thursday to 80.19. Its 50-day moving average had been resistance since Jan. 18 but not anymore. The greenback looks poised to break out over a descending trend line. A new potential resistance level is its 200-day moving average at 80.87. If money continues to rotate out of the Euro and into the dollar, it could weigh on the market in the near-term.
Continued strength in the dollar, however, is far from a sure thing. The CurrencyShares Euro Trust (FXE) continues to hold above its 50-day moving average (131.29). It closed Thursday at 132.92, down 0.9%.
RIDING WINNERS
As far as the Ultimate Growth Stocks model portfolio is concerned, we’re not in hurry to buy anything, but we’re willing to let our winners run for now. We’ve been doing some trimming but not much. Current holding LinkedIn (LNKD) reported solid earnings late Thursday. Shares surged 9% in after-hours trading.
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[Editor’s note: For a sample copy of Shreve’s newsletter e-mail him at ken.shreve@yahoo.com ]
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