Pullback is healthy...so far (SPY)

By Lawrence G. McMillan

Some wild action in the U.S. yesterday, coupled with a 7% decline (!!) in Japan overnight, has put traders on edge.  Yesterday saw $SPX gain about 1% (up 18), then lose most of it, then gain about 10 again, and then just collapse, finishing 32 points off the high of the day.  Overnight, after the debacle in Japan, S&P futures were as must as another 23 points lower, but at this writing, they are off about 14.  Even so, $SPX was so overbought that it has not even pulled back to the first support level at 1625 or so.  The 20-day moving average is near that level as well, and the first overbought pullback usually penetrates slightly through the 20-day moving average.  The next support level below that is 1600, and it is one that is quite important.

I expect TV to make today’s selling sound very scary.  But, in reality, it’s a normal pullback that hasn’t even violated a support level or generated a technical sell signal yet.  Those might come today, but so far in this bull market, it has not paid to anticipate sell signals.  So, let’s see if any do actually occur.

This commentary was taken from this morning's edition of The Daily Strategist newsletter.