Markets Pull Back After Rally

On the second trading day of 2009 the market broke its three-day winning streak as the major indices fell. The Dow (^DJI) led the way lower with a drop of 0.9% or 81 points to 8952 - back below the elusive 9000 level. The S&P 500 (^GSPC) fared better, falling 0.5% or 4 points to 927. The NASDAQ (^IXIC) almost snuck into the green, but ended the day lower by 4 points or 0.25% at 1628. Oil finished higher by $2 and gold fell $20.

First of all, I want to wish everyone a Happy New Year and a healthy and prosperous 2009!

For the last two weeks it was one big holiday for many (including myself), even though it was one of the busiest weeks of the year for PFG. Overall many traders and big money were on the sidelines and the action could have been viewed as meaningless. Now that the holidays are behind us it is time to begin focusing on the stock market again and the potential for a rebound in 2009.

The pullback today was on the biggest volume in week, but compared to the last two months it was very light. Maybe traders took an extended holiday or it could be related to one of my market theories of December. My thought process that the big money that wanted to sell did so in October and November (mind you at the bottom) and at this point there are not an overwhelming number of sellers or buyers. And therefore, the markets will likely trade in a range for the coming weeks as the bulls and bears battle for supremacy.

All three major indices closed above their respective 50-day moving averages last week for the first time since August. At the same time they rallied through the December highs and the moves could be considered a mini-breakout. However, the volume was minuscule and investors need to wait for confirmation.

The breakout was great and it definitely grabbed my attention, but at the same time the light volume and the fact it occurred during a holiday week leaves me in the neutral camp. If the indices can hold above their old price resistance and 50-day moving averages in the next week or two, it will lead me to become more bullish and likely cause me to start doing some buying again. As you can decipher by now, I am not sold on the breakout and will not get caught in a low-volume bear market rally. On the other hand, the lows in November should hold for the next few months and therefore buying on weakness is a solid strategy. I may be finicky, but a pullback to the old breakout levels would be the ideal setup for buying. To prepare for this possible setup we are refining our stock and ETF Watchlist and will be ready to pounce on any buying opportunities in the coming days/weeks.

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