Who is not waiting for a pullback?
Posted by Danny on November 17, 2014
The ebola whipsaw in October has left investors scratching their heads. Many may be waiting for some pullback to get back into the stocks they sold in panic just one month ago. And they were probably hoping that the end of QE would give them a chance to get back in at much lower prices. But no, stocks just continue to grind up without any pullback worth talking about. What’s going on?
Let’s have a look at the Nasdaq (click image to enlarge):
The Nasdaq is sitting just below overhead resistance near 4700. Could it actually break out to the upside? That appears unlikely given the massive surge we have seen in the recent month. But you never know. All we may get is a few down days with impatient buyers stepping in immediately. I never rule out any scenario, and it is possible that the October sell-off has marked the end of a 10 month sideways correction. If so, then we will see a breakout to the upside in the next month or two. The Nasdaq could climb to ~5000, then briefly pull back to 4700 in January, before going on in 2015.
It will take a drop below the October lows to push us into a bear market. If that doesn’t happen investors will soon start focusing on two round numbers: 5000 for the Nasdaq and 20000 for the Dow Jones.
People may wonder: where will the money come from to push stocks higher. I think the answer is: out of bonds.
On the downside, major support remains near 4500, the July highs. That’s where buyers are likely to show up if we get the eagerly awaited pullback.