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March 10, 2008

Stock Market Rally Intact But Warning Bells Growing Louder


For the first time since the stock market followed through on its current rally, the Leading Stocks Analysis is signaling that a major pullback or correction is on the horizon.  The analysis does signal anywhere from a few days to approximately 4 weeks in advance, so it is not an automatic sell signal, but it is a major cautionary signal and should not be ignored.

This has been a frustrating but profitable rally.  The first two months were extremely difficult to handle and the last month and a half has seen the early breakouts (first two months) follow through while most new breakouts stalled or failed.  If you were not in early, you have been frustrated and knocked around.

Generally a month and a half into a stock market follow through, leadership should be expanding and new leadership should be developing.  Unfortunately,  leadership has been narrowing since almost the follow through day and even recent action has seen most breakouts fail or stall.  Even Shorter term trading setups have failed to follow through longer then a few minutes to a day.

The narrow leadership that continues to run is now extended not only from their initial pivot points, but from any secondary add or initiation points.  Based on history, many leaders are also too extended from their moving averages to make much more progress without some kind of multi-week consolidation.

Market Signal