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Sunday, September 27, 2009

Weekend Reflections & Chart Review

The market is highly unlikely to be nearly as tranquil as the image above in the coming weeks, so feast your eyes and mind on whatever beauty and calm you can find in your midst or imagination while you have the chance.When unable to actually hop a plane and transport myself to a setting that was seemingly put on earth for the sole purpose of soothing the senses and the spirit, I begrudgingly settle for visualization (and a little self-delusion) when life gets complicated or stressful instead. Historically speaking, the months of September and October tend to serve up more than their fair share of market drama and volatility, so balancing mercurial moves and their accompanying adrenaline rush with a little mental escape when possible can help to maintain optimal focus.

After months of broad-based gains in stocks, markets pulled back last week, sending many traders clamoring to take a stance on the bearish or bullish side of the fence. We've heard calls from all corners of the blogosphere, from one extreme to the other and back again. "The top is in!" or "We're in the early stages of a new bull market!" or "We're headed to $SPX 0 and the apocalypse!" are all announced with equal conviction, supporting arguments,  rationalization, and often more than a little bravado. But the truth is that nobody knows, and the most successful traders will keep an open mind and wait for enough information to become available to enable them to make profitable trading decisions for the near-term, while continually reassessing the "beyond."

 At the moment, in terms of assessing the significance of recent action, all we really have to go on is a fairly orderly pullback to just above some decent support that occurred on decreasing volume. With Monday slated to be a lightly traded session due to the Yom Kippur holiday and short-term oversold conditions existing in many stocks and the major indices, a bounce is certainly plausible, despite a bearish close on Friday and for the week. On the other hand, the rally is getting long in the tooth and could use a significant correction, and last week's reversal off a new high occurred near key resistance levels. Many individual stocks tumbled sharply on the sell-off, with more than a few barely hanging on to important technical support zones. In other words, a lot of mixed signals remain and there is simply not yet enough information at hand to be heavily positioned one way or the other. I suspect we'll get more clarity quite soon. Let's take a look at where we are on the $SPX and then IYT, the transportation ETF, which tends to be a telling economic barometer.

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