Tags: Buy | Stock | Pullback | Looming

Don’t Buy Just Yet, a Stock Pullback Is Looming

Thursday, 09 Feb 2012 10:15 AM

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Buyers continue to appear and buy the small dips in the market.

The situation in Europe seems to be stabilizing a bit and bond yields of PIIGS countries like Italy have dropped sharply during 2012.

This shows an increase in the risk appetite of market participants.

We also got a "Golden Cross" buy signal in the S&P 500 last week. This is when its 50-day moving average crosses the 200-day moving average to the upside.

Since 1942, this technical buy signal has proved to be accurate in predicting a longer-term uptrend. Its average maximum gain when generated is more than 30 percent in the S&P 500.

Does this mean you should buy stocks right now?

Not at all. If you missed the strong rally that started in mid-December you will probably get another good buying opportunity soon.

We are hitting the 1,350 resistance area in the S&P 500. This resistance area has proved to be hard to surpass for the market. Last year’s highs were achieved at these levels and profit taking and short selling is to be expected here.

Also, the market is short-term, overbought after a continued grind higher.

My proprietary timing tool is flashing a sell signal.

The last time this signal was generated, in early November 2011, it had an important sell-off.

Also, the Dollar Index is becoming very oversold and has reached technical levels that tend to coincide with important bottoms from which it bounces back.

A stronger dollar is usually bearish for stocks, commodities and precious metals.

Bottom line: I think we are near a pullback in the market and I recommend a profit-taking approach instead of buying stocks at the current levels.

It is very probable, under my criteria to interpret the markets, that we will enter a 5 percent to 8 percent correction and a better risk-reward opportunity to buy stocks will appear at lower price levels.

I would recommend that if you haven't bought stocks yet, hold your fire and wait for this pullback.

If you are making money investing in the market during 2012, cash in some gains at the current prices.

About the Author: Victor Riesco
Victor Riesco, a financial analyst and trader in Santiago, Chile, works as an independent adviser and educator and operates a brokerage and trading business for local investors. He is the founder and editor of www.globaltradingpad.com. Click Here to read more of his articles.


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