We are at one of those times when the market could go either way, dramatically up or down. I think the term “inflection point†is overused, but I really think now is one of those times. We just celebrated the two year anniversary of The Great Recession bottom and one of the most explosive bull markets ever. So where do we go from here?
Digestion
The incessant increase since last September has stalled out a bit as the market grapples with oil above $100 a barrel. Meanwhile, things still are in disarray in the Middle East, with the fears of a domino effect cutting off oil supplies still in the minds of traders. I mentioned recently that this has to start mattering soon, and it appears the time has come because we have seen some ugly action under the surface lately.
Home On The Range
The Dow seems to have moved into a trading range between about 12,000 and 12,300. If the market breaks one way or another on heavy volume, I think we will see a strong continuation in the same direction. I don’t think it will be easy to break either way, because there is strong support from dip-buyers and plenty of anxiety about oil.
I believe there are a few clues as to how the market will act. One of the main things I look at is to see how the dip-buyers behave. Throughout this entire ride up, investors have snapped up stocks the second they dropped as if they were like Pavlov’s dogs. We are starting to see this behavior reverse a bit. The market has undergone several distribution days, where prices fall on volume heavier than the previous day.
Market tops are not one day events, but processes, and there is definitely a possibility that the market is topping out. The best thing to do is let the market do the talking and not be overly anticipatory. Making any big bets before the trading range is broken is like playing Russian Roulette. You want the odds in your favor and waiting for a breakout or a breakdown is the ticket.
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