Finally the widely forecasted pullback has ensued with the DJIA (Dow Jones Industrial Average) off more then 900 points (on June 24th) from its high (on May 22nd). Since the Expectations Indicator is still signaling a Low Expectations environment we should expect the market to find support and resume its bullish move higher after this pullback has run its course.
Since the pullback has ensued we have seen weakness around the world in stocks and fixed income, specifically US Treasuries, with the only real winner being the US Dollar. Historically selling in the stock market leads to buying in the treasury market. From this unique market action we can only assume the proceeds from the sales of these securities are being converted in to US Dollars. Whenever Wall Street chooses cash over securities, we can only assume they are unsure what to do. To further illustrate this point, whenever the market has had an up day in this pullback there has been buying in both equities and treasuries showcasing Wall Street’s confusion over where they should be putting their cash to work.
Taking into consideration the unsure moves of Wall Street during this pullback, we can only assume the downturn in the market will be larger then expected. Using time tested support and resistance rules, a likely point of support could be found around the 13,000 (plus or minus 250 points) on the DJIA.
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