A Pullback Is Likely

The chart of the S&P 500 (below) shows unusual trading activity in that the ranges are shrinking. Friday's range, adjusted for the price level of the index, was the smallest it's been in a number of years. Looking back, the tightest trading ranges tend to come on market tops, and the widest ranges occur on the bottoms.

The second chart shows the shorter-term Arms Index's moving averages. The five-day has become extremely overbought, and the 10-day average is also at an extreme. An interesting additional factor is the 10-day average still contains the big number generated when the market slumped 200 points two weeks ago. But that number will be replaced at today's close, so it is very likely that the 10-day average will go even further in its extreme. That is certainly a warning that the bulls have been pushing too hard and suggests an almost immediate pullback....250 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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