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April 30, 2012 – 5:15 pm

Continued weakness in Europe and some economic numbers put some small downward pressure on stocks. However, the basic reason stocks are weakening after making a high at the beginning of April is seasonality.

The market moves in waves. These waves form patterns. Unfortunately, the patterns are not always consistent but in general they shape markets. One strong yearly pattern is the one tied to the seasons of the year. The broad rule is that the summer months are not as strong as the winter months. The last and first quarter of the year are better than the middle two of the year. Some of this is self-fulfilling and some of it is because traders and investors go on vacation during the summer but none of it can be relied on exclusively.

We are entering the time of the year in which we tend to have more volatility and a correction or two. If we are headed into a recession the correction turns into a new bear market, but even then you could have a bear market without a recession.

As we enter May the prudent investor gets a little defensive, but he does not exit unless there is economic contraction or a recession on the horizon and even then there are ways to make money on a stock market fall. This is part of managing the risks that one takes in their portfolio.

Good Trading
Steve Peasley

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