Posted on Wednesday, January 23rd, 2013 | In Market Commentary
If you’re an investor, you should pray for a pullback.
Nothing earth-shattering, of course. Just a nice, orderly few days with stocks in the red.
What you need is a buying opportunity. More to the point, you’re looking to pick up some shares without feeling like you’re a dog chasing your neighbor’s Mustang down the street.
Don’t fret — the market understands. Stocks won’t move straight up forever. In fact, they’re showing early signs that a minor top is on the way in short order.
It’s all about bullish momentum…
This is a look at the S&P 500 Bullish Percent Index. The big middle section of this chart shows the percentage of stocks in the S&P that are currently displaying a longer-term technical buy signal. After retreating in October and November, the index is now showing that nearly 80% of its components are flashing buy signals.
But the real story lies in the top momentum gauge. Each time the index has heated up to extreme levels since the 2011 bottom, it has provided a nifty little short-term sell warning (red arrows). You can see the corresponding minor tops on the S&P on the bottom chart. We’re seeing these extreme levels again right now. Therefore, a momentum drop below 70 will be your first clue that this move will stall out — at least, temporarily.
The drop will be your chance to look for buying opportunities. But planning is required. Decide what names you like and have them ready. That way, when the time comes, you can quickly capitalize on the price action.
About The Daily Reckoning (http://dailyreckoning.com)
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also the author of the free daily e-mail The Daily Reckoning. Written in a wry, witty and often irreverent manner, The Daily Reckoning has offered its over 500,000 readers insights and advice not offered by today's mainstream media. The DR looks at the economic world-at-large and offers its major players - investors, politicians, economists and the average consumer - some much-needed constructive criticism.