Bespoke yesterday highlighted that it has now been 42 days since the S&P 500 Index has had a pullback (one-day or multi-day) of 1% or more. As seen from the table below, since 1990 there have been 10 other periods where the index went 40 days or more without a 1% pullback.

The report noted: “The S&P 500 is up 8.75% over the last 42 days.  As shown, the number of days without the 1% pullback ranges from 40 to 70, and the price gain ranges from 4% to 9%. So while there have been longer periods of time without a 1% pullback, the current gain of 8.75% without a 1% decline is at the top end of the range over the last 20 years.”

Source: Bespoke, April 6, 2010.

Yes, the market is overbought, but very often stays overbought in a bull market. No, only up to a point, argues Michael Panzner, author of the Financial Armageddon blog and the book When Giants Fall: An Economic Roadmap for the End of the American Era.

As seen from his chart below, going back 90 years, whenever the 12-month rate of rate of change (ROC) in the Dow Jones Industrials Average exceeded 40%, it generally signaled trouble ahead.

“In three cases, a 12-month ROC above that level has only marked a short-term pause, after which the market traded higher. But on 11 other occasions, similarly rapid advances have been followed by notable corrections, including the collapses that followed the 1929 and dot-com era peaks, as well as the 1987 crash,” said Panzner.

Source: Michael Panzner, Financial Armageddon, March 31, 2010.

My stance remains one of caution. At least, that is the way it looks from my vantage point deep in South America.