Three Caution Flags Warning of a Market Correction

by Mike Burnick 10-02-09

from: Weiss Capital Management

In a recent article, I said “for every action, there is an equal and opposite reaction.” This is a physical law of the universe, which also applies to financial markets.

Some investors call this “reversion to the mean,” which, simply stated, means that extreme market moves in one direction are often followed by equally extreme moves in the opposite direction.

The great bear market of 2007-08, followed by this year’s robust bullish bounce, is a perfect case in point.

So, it follows that one camp of analysts warns of how “overbought” stocks are and we agree. Recently, the S&P 500 Index traded about 20% above its 200-day moving average of prices — the first time that’s happened in nearly 30 years … since 1983 to be exact.¹

The sheer magnitude of this rebound has been extraordinary and the perception that stocks have extended a long way above average is realistic, but consider the extraordinary depths from which they came … see the complete article here:

http://www.moneyandmarkets.com/three-caution-flags-warning-of-a-market-correction-5-35680