[smartads]
Over the last week, the markets are down 2% across the board and many are questioning whether we’re seeing a trend reversal to the bear’s side or if this is just a hiccup in the road.
I have been clamoring both on Twitter and this website that this market and many stocks are drastically overbought. Compound this with Obama’s proposed bank rules and we have a recipe for this current down swing.
The question is will is stay? While we won’t know until the market plays itself out, there are a lot of factors that lead me to believe this is just short lived bear rally. For one, companies are pretty much reporting average to above average earnings. Credit is still tight, but leading economic indicators were up a higher-than-expected 1.1% in December.
When a company such as Google (GOOG) rakes in nearly $2 billion in profit and returned to double-digit revenue growth for the first time in a year and traders are selling the news, you know stocks were overbought.
Looking at the 1 year charts of the Dow, S&P 500, and Nasdaq, they all pretty much show the same thing, which you can see in the S&P 500 chart below:
They are all still creating higher highs and higher lows, which is indicative of an uptrend; however, the slope of the growth has flattened out more, but this is expected as the markets can’t keep this high rate of growth forever.
All the markets are hanging around the 50 day moving average, with the Dow the only one which has closed below, and none are even remotely close to the 200 day moving average, which is more telling when we are looking at a more distant outlook.
So trying to take in all this information, I don’t think this down move is more than a minor correction post high-rate bull rally factored in with some unpleasant news. So lets not get too excited… YET!