I noticed an interesting pattern forming in S&P 500 index. After a big gain on October 5, 2010 (point A), S&P 500 took next 21 trading days to slowly increase from about 1160 to 1200. Then,
another big gain occurred on the 22th trading day (point B). On December 1, 2010, another big gain occurred (point C) and once again it took next 21 trading days to slowly increase from 1206 to 1260. On the 22th trading day, we experienced another big gain on January 3, 2011 (point D). Point A to B is very similar in characteristics compared to point C to D. The only difference is the amount of gain (40 basis points versus 50 basis points).
If history does repeat itself, then we could see a selloff in the stock market starting late this week. What happened after point B? The stock market sold off and gave back about 40 basis points. Will same thing occur since we recently experienced point D? Will there be about 40-50 basis point decline remaining month? Only time will tell but I would guess that we could see at minimum 40-50 basis point decline in S&P 500. Expect S&P 500 to decline to 1220 range by early February.
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