Could Be Tough to Sustain

The Federal Reserve's lack of action has given the already-overbought markets a further impetus. There is no point in arguing with the tape, which is reflecting a sudden return of confidence. We can see this in the big drop in the CBOE Volatility Index (VIX) to very complacent, and hence very overbought, levels. But I have not changed my desire to be extremely cautious and to protect long positions with close stops.

A look at the first chart below makes it clear that the rise to new highs has nevertheless taken the S&P 500 to a region where resistance is likely. Please note the vertical lines that indicate the very regular occurrence of market lows this year. The market made the last low in late August, and the cycles have been lasting a little less than two months, bottom to bottom. So the next market high would be expected in mid- to late September, which is about where the S&P is right now. This is another reason for caution, in addition to the Arms Index moving averages shown on the second chart below....237 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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