Why This Pullback Won’t Last

tdp2664
InvestorPlace
Dollar up, gold down, oil down, stocks down. Will this continue? On Tuesday, I outlined the major support areas of the indices and said that following a big move up it was common for stocks to “correct” back to the breakout line. For the S&P 500 that line is the first line of support, and it was formerly the resistance line drawn from the February high of 1,344 to the April high of 1,340. Thus, the major support zone is bounded by the breakout line at 1,340 and the bullish support line, now at about 1,285, with the 50-day moving average (blue line) at 1,319 above the halfway mark of the support zone. Yesterday was the third day of a retracement of the breakout, and the S&P 500 came to within a point and a half of the breakout (support) line. Note that the short stochastic rendered a sell signal on Tuesday (red line crosses through the blue line), and so it is possible that we could see a day or two more of selling. Yesterday was also the second consecutive day of a small uptick for the U.S. dollar. This minor rally in the buck has a negative impact on precious metals and energy prices. The chart of the dollar we highlighted yesterday showed the massive sell-off of the dollar and the probability that it will test its July 2008 lows. Thus, the likelihood that the current pullback will end this week or early next week should alert investors to prepare to buy into the pullbacks within the next several days. Our favorite sectors are still energy, precious metals, and related industries like mining and oil rig supply and maintenance companies, along with their associated exchange-traded-funds (ETFs). For one oil stock to buy on a pullback, see the Trade of the Day . Today’s Trading Landscape To see a list of the companies reporting earnings today, click here . For a list of this week’s economic reports due out, click here . If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net . View Survey