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On Wall Street, at least, it’s the same old story. Seasonal forces (the “summer siesta” I’ve talked about), coupled with record oil prices, have triggered a mild pullback in the stock market. But perky earnings reports from the June quarter keep luring buyers into selected stocks.
What took you so long? We’ve been waiting a week or two for stock prices to enter their “summer siesta” – and with today’s sharp pullback, siesta season may almost be here. Several of our intermediate-term indicators, which typically look at the market through a three-month window, are now threatening to turn down from severely overbought levels. It may take another day or two for the final top to be put in place, but we definitely expect lower prices by mid-August.
A dip, then another rally! Stock prices marked time during this holiday-shortened week, with all the major indexes closing slightly lower. But so far, we’ve seen nothing to derail the rally that began in late April. In fact, a couple of down days in the coming week could energize the bull again and take us up to new highs for the year by late June or early July.
We’ll take it! Stock prices climbed further this week in the run-up to the Memorial Day break. Technology stocks, in particular, continued to outperform the overall market�always a good sign, because it suggests that investors are feeling more comfortable with the economic outlook.
It’s the real thing! Finally, this week, stocks broke out of their funk and staged the decisive upside reversal we’ve been waiting for. Even the mild profit taking in today’s session fits the pattern perfectly. As we predicted last week, the base building is now complete and we look forward to a brisk rally lasting into mid-summer.