We’ve had some choppy days lately but as I said last week, so far this has been a textbook correction for stocks. The S&P 500 is still fairly overbought in the long-term, trading near the high-end of this 3-year price channel.
S&P 500 – 8 years (weekly)
Looking a little closer, we haven’t seen enough selling yet to exhaust this pullback. Last Wednesday’s breakdown was the move that put the pullback in action. I think there’s a strong chance we see one last flush lower over the coming 2 to 3 weeks. Earnings are starting to come in and haven’t been overly optimistic so this may be “the reason” stocks move lower. If the S&P 500 trades down to the 1500-1530 range, I’ll be adding to US stocks. Bernanke scared a lot of people out of bonds with last week’s announcement and the capital continues to pour into the US from overseas. The money has to end up somewhere which means we could be setting up for a nice rally this fall.
S&P 500 – 9 months (daily)
-Nick