The pullback I have eluded to may have finally started--It is about time. With the retailers leading the way down, poor breadth, and closing near the lows of the day the indexes looked really weak today. But, all in all, it wasnt that bad of a day. Volume was lower today than yesterday, on the Nasdaq, NYSE, and Dow. However, volume on the SP600 grew as the index lost 1.4%. That is its first distirbution day this month. As the leading index in this rally, it will be important to watch if more of these days pop up to signal if a correction is coming for the index or just a normal pullback.
All trends remain up, since the October 2002 bottom, except the Dow Jones short-term trend which today turned latreal.
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3 comments:
"it will be important to watch if more of these days pop up to signal if a correction is coming for the index or just a normal pullback." How do you tell if it's a pullback or correction, correction=%5 I think you said so - if one day drops %5 or many days which add up to %5? and if it is a pullback will it continue dropping for a while or... ?
Regards, Liraz...
Keep writing ;O)
I probably didn't phrase that too well. So just in case:
A correction - Can it be considered a correction if it drops for 5 days %1 or 1 day %5 etc.
A pullback - Is it a pullback if it drops more then %5 over any amount of time - e.g 20 days falls .5%, 3 days and falls %4 each day.
Hope it's abit more clear :P
A pullback would be the index moving lower--less than 10%--over a period of time on lower volume.
If volume picks up everyday on the way lower, a serious pullback/correction is probably starting. Once you drop 10%, then officially, they call it a correction. A 25% drop is a crash no matter what time period.
The best way to tell how serious a pullback is is to look at individual charts of top stocks during the previous uptrend. If they are cracking on the biggest volume since the move, look out. If that happens and no other industry picks up the slack by having a bunch of stocks in the group go higher, you can be sure the downtrend will last some time.
If you see new leaders emerge, it is probably just a rotation from old leaders to new leaders and the markets should resume the uptrend.
However, nothing is written in stone. History repeats itself, but the seasons are still never the exact same. Sometimes summer is longer than winter, sometimes visa versa. Only using all data--stccks, indexes, sentiment, and macro data--will you be confident over time in telling what is a pullback, correction, or serious depression.
That is why charts are both science (the actual lines) and art (the shapes and structure of pattern to the eye).
Hope this clears it up a little, my young apprentice.
Aloha
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