By Lawrence G. McMillan
The stock market has now pulled back for five straight days. This came after a strong upside breakout.
On the surface, it is disappointing that the upside breakout momentum faded and gave way to this decline. However, the market was very overbought a week ago, and it was inevitable that a decline was to take place to alleviate that overbought condition. It is our viewpoint that this pullback is a healthy one, and it will lead to higher prices soon — certainly over the intermediate term.
The chart of the Standard & Poor’s 500 Index SPX -0.98% clearly has a pattern of higher highs and higher lows (see chart below), and that is positive. The five-day pullback has retraced to the bottom of the rising channel on the chart. SPX has made lows in the support area of 1,330-1,340 this week, and as long as that level holds, the bulls are still in charge. There is also support at 1,310, which — if violated — would put an end to our bullish thoughts...
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