Weekly Summary
While the trend remains up for now, there are many troubling signs that a major peak has landed and a painful sell-off is underway. The semis have broken below important support. Ditto for the financials. European indexes are breaking below critical support of their 50 day moving averages. China is breaking to new 7 month lows, trading below both the 50 and 200 moving averages. The Energizer Bunny rally has been going and going for well over a year now without any meaningful pullback, and even if that prolonged advance was the early stages of a robust bull market, a 50% retracement of those gains would be no surprise at all.
Whether such a painful pullback would then lead to even higher prices as the correction ends and the bull market resume - versus such a pullback representing the early moves of an on-going bear market destined to take out the March '09 lows - depends on the fundamentals going into the second half of 2010 and beyond. There is a clear bull and bear case for both scenarios - and plenty of people to offer such sage (and useless) advice - so we'll leave such jawboning and speculation to others, while keeping an open mind that both outcomes are possible.
I made my case for what I expect in the forecast issue I published late last year - accessible over in the archives at alphaking.com - though I will follow would ever trend develops, even if such trends are totally opposite what I expected.
Risk of a harsh reversal remains extreme, so be careful of buying on dips this time around.
Kevin Wilde, Chief Trading Strategist, AlphaKing.com
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