Last week I made the observation that maybe the S&P 500 might have just gotten a little hot and just needed to consolidate a bit. We call this being over bought. The chart to the left shows that after two major pushes up that twice the market was over bought and now we are just pulling back a bit. I do not put a lot of value on over bought and over sold, but it does help explain a little of what might be happening. The most important line in my opinion is that uptrend line. It is the leading indicator that trend is over is most cases. The second indicator is price closing below the 50 day moving average, the 50 Exponential crossing below the 50 day simple, and then the eventual turn down of both averages. You notice I use what I call the CBL a lot in my post and charts and the reason is this. It’s official name is Count Back Line and it is what I use to get in and out of stocks and it makes a nice first line warning that stuff is about to happen. Now let’s put all this together with the current chart. The Green up trend is safe and the 50 day moving averages are good and safe, so we have no reason to bail today. The CBL is also safe here, but it could fail soon. Based on price action alone, I see nothing here at all that would give me a reason to bail, only watchful.
One more note for the chart above. If you are out waiting to get in, that horizontal green line is the re-entry line today. If the market continues to go down that re-entry will move down with it. I market price continues sideways and up, it will stay valid.
S&P and C-fund is safe but under watchful eye.
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