Technical Talk: Expect stock market consolidation/pullback

By Prieur du Plessis, on January 11th, 2011 posted in: Investment, Stocks Leave your comment

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The comments below were provided by Kevin Lane of Fusion IQ.

Although we remain bullish over the intermediate term, we believe the combination of the short-term overbought nature of the market coupled with bubbling bullish sentiment could lead to a decent near-term correction. That said, we think the greater probability over the short run is for a consolidation or pullback.

Geopolitical risks are also popping back into the main stream, which could force traders with itchy trigger fingers to tap recent paper profits. We think the geopolitical catalyst that could aid in a corrective wave will be the re-emergence of problems in the PIIGS countries.

Additionally, with bond yields spiking investors will now pay much more attention to the CPI & PPI and the persistent upward pressure on all commodities. Higher turnover clients may want to take some profits, while those with longer duration may want to hedge out the risk of a decent pullback.

Technically the markets are overbought in the short term and two key benchmark indices, the Transports and the Banks, are both near resistance and may need to consolidate or pull back. The earnings season officially begins tonight [Monday] with Alcoa’s numbers and could likely lead to some volatility.

S&P 500 still in bullish channel – very minor support near 1,250; better support at 1,225

Transports ran into resistance in the 5,215 area, are likely to pull back and consolidate – minor support at 5,000; then better support at 4,825.

Banks are also running into resistance near 54 – minor consolidation/pullback likely towards 51.

Source: Kevin Lane, Fusion IQ, January 10, 2011.

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