Pullbacks

I'm really tired so this is going to be a short post on the recent pullback. I ran into a great article by Bulkowski on throwbacks and pullbacks over the weekend, take a look. Bulkowski defines a pullback as the climb in price back to the base (breakdown price) within 30 days after a descending triangle breakdown. In other words, after a stock breaks badly on large volume it often "pulls back" to the price where the break occurred. According to Bulkowski's statistics, pullbacks occur 56% of the time after an average initial decline of 9% in the three days following the break. Now take a look at the S&P 500:


Depending on where you draw the base of the descending triangle the pullback may or may not have completed last week. Notice how the S&P 500 pulled back to the August low at 1370 last week almost to the penny, then sold off again. The volume was lower on Friday as the market declined so I think there is still a good chance that the we rally back up the November lows before tanking again but we'll see. Bullkowski says there is a 56% chance that the pullback occurs so returning to 1400 on the S&P 500 should be slightly more likely than continuing to fall in the short term. I would really like to see a rally back up to that 1400 area where the 50 dma will be and declining volume would be ideal ( what we are seeing so far). However, I have little faith in this market and will take profits on the long side when I can.

Right now seems like a great time to be looking at individual stock charts for completed pullbacks for short entries. I don't have any specific charts for you tonight but maybe I'll throw some up this week. A few other noteworthy news bytes:

Bush will give his state of the union address Mon night
CFC reports earnings Tues before the bell, no conference call
FOMC decision on interest rates on Wed, market predicts .50% cut
GOOG, MA, ICE and AMZN earnings this week
Credit squeeze is a windfall for the exchanges

Disclosure: I own NYX and ICE calls, also BAC puts