Many traders – myself included – have been asking if a stock market pullback is coming. The market has risen so quickly and relentlessly this year that finding the right time to buy has been hard.
It’s like the ultimate Santa Claus Rally – the gift that keeps on giving long after Santa made his rounds in December. He certainly delivered good tidings to all the bulls who were fortunate enough to jump on board the Polar Express.
All joking aside, the stock market trends under these conditions are, well … still very bullish. In fact, strong markets tend to stay strong – or get stronger, if you can believe it. How could this already stellar SPX 500 rally outdo itself? If you’re a believer in momentum (we are), then you know indexes and stocks will continue to make higher highs and higher lows.
This begs the question:
Will we ever see a stock market pullback?
As sure as the sun rises in the east and sets in the west, there will be a stock market pullback. It’s a natural event, and it’s nothing to fear – unless the pullback a big one.
You can usually see a pullback coming in indicator readings, momentum, economic data and, of course, the Federal Reserve’s statements and policy. For traders, the problem is that nobody raises a flag and says, “It’s time to sell!” You might not realize a pullback is happening, or you might choose not to participate.
The markets will come back down at some point; momentum works in both directions. Just look at the sharp and unexpected December decline.
My best advice is:
Continue to follow the indicators and technicals.
ALWAYS carry some put protection, just in case.
Turn down (or completely) avoid the media noise, because they do not have your best interests in mind.
Pay attention to the price action – it will never lie to you.