Normally, Top Equity News reserves Monday’s to discuss our technical take on the market. As long as stocks are heading higher, that’s all the maintenance that’s truly needed.
However, when stocks start to slide, that’s when doubts kick in, and investors need to know the lay of the land going forward. While yesterday’s mini-cliff dive is a friendly reminder that risk in 2012 hasn’t taken a full sabbatical, Top Equity expects the sour turn to evaporate quickly.
We looked at the past decade for the S&P to see if any rally died on its first trip down to its 26 or 50 day average; once the S&P U-turned on the initial wave of selling. That happened in July of 2004, and we wouldn’t even call it an ongoing rally. It was more of a charge up after a selloff, short covering perhaps?
Now we know that every significant advance has rebounded fairly quickly. It’s time to turn our attention to possible entry points for new money. For the three most popular indexes, the Dow, NASDAQ, and S&P closed Tuesday on preliminary support levels. If stocks get off to a strong start today and recover some losses, the index might be as low as they are going to go in the near-term.
If we close red today, then TEN believes the 50-day averages will probably be the firewall. For the Dow, the number is 12,678, the NASDAQ 2819 (that would be painful), and 1,321 for the S&P 500.
Top Equity’s strategy is to see how the indexes respond today. A healthy start and initiating half positions might prove to be rewarding. We would sit on the other half just in case Wall Street throws a head fake and heads to the 50-day average. Close red today and you’ll likely have a chance to buy near the 50 day line.
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