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Risks and the Market

November 9, 2009 – 11:05 am

Despite Friday’s surprisingly large unemployment number exceeding 10%, the stock market again is shaking off the 5% pullback in prices to march higher. This morning the DOW has hit a new 52 week high. Earnings have been on average better than expected and the guidance for future earnings is positive. We have had several 5% pullbacks in the last few months and each one has turned out to be a buying opportunity. This one, so far, is acting the same. Buyers come in when they see a hint of lower prices.

There is however a little chink in the armor in rising stock prices. The DOW 30, the oldest and most watched index, is rising on lower volume. For those that watch and follow technical analysis a decreasing volume in stock trades while the price moves up means less buyers are entering the market. Thus the conclusion is the rally will lose steam quickly and reverse.

Of course it does not always work out that way but it is an issue. Also, volume can turn on a dime. If the market continues up there is enough cash on the sidelines to push volume up thus prices higher.  The fear is that the longer the market goes without a normal pullback the chances of a bigger than normal pullback increases.

In other words the market is becoming more risky. Still you need to stay with the market until we see more signs of weakness.

Good Trading
Steve Peasley

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