A couple of the market reversal tools Top Equity News employs are sending out warning signals. The indexes are trading to the topside of their normal upper boundary lines and are posting relative strength ratings near 70.
While both of these situations can persist for some time, the longer they last the steeper the drop is likely to be.
TEN doesn’t believe the primary uptrend is ready to end. However, as we mentioned up top, stocks are due for a correction in the intermediate term. If stocks should turn red, as a rule of thumb, investors can expect anywhere from a third to two-thirds of the recent rally to be erased.
The midpoint would put the NASDAQ around 2650, the Dow at 12,300 and the S&P 500 near 1270ish. We think these levels would be an opportune place to buy the dip should it occur.
Now, there is plenty of news this week that could kick-off the u-turn or kick it down the road. A ton of industry leaders are scheduled to release earnings this week (like Apple (AAPL)), and the Fed could begin QE3 Wednesday afternoon.
A run of better than expected profits and another trillion dollars injected into the economy – this time to buy mortgages – could give bulls a triple shot of 5 hour-energy. Whew-who, let’s buy.
If TEN had to lay odds on it, we would say it is 60/40 that profit taking starts this week and the indexes head towards TEN’s midpoint projections.
Investors might consider adding a small position in an inverse ETF like ProShares Short S&P500 (SH). The fund seeks daily investment results, before fees and expenses, which correspond to the inverse (opposite) of the daily performance of the S&P 500(R).
Nothing goes up forever, except a man’s age. The current rally has stretched the rubber-band thin. Another tug or two higher and it’s likely to snap.
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