A New High Doesn't Mean 'Buy'

Maybe you can't believe in the Tooth Fairy or Santa, maybe the Lakers won't win the title this year, but some things are pretty dependable, and in this market, that's where I want to place my bets: on those patterns that recur over and over and over again.

One such pattern is for the market to pull back to the prior highs after making a (higher) new recovery high. We saw that happen just yesterday after Monday's moonshot to new highs for 2009 on that much-ballyhooed pop above the 200-day moving average. On Tuesday, the SPX was closing in on the 950 level, almost 20 points above the May 8 highs at 930.17.

From there, no surprise, the SPX would sell off back down to those prior highs at the 930 level and in fact almost fill the gaps from Monday's opening. Almost, but so far ... not quite. Yesterday's selloff, which returned the SPX to the 924 level, less than 5 points above Monday's gap at 919 in the SPX (918.10 in the futures), may have been close enough for now. For that matter, the pullback to the prior highs at the 930 level of the cash (927.70 in the futures) satisfied a minimum retracement objective and set the stage for another bounce, though more of a pullback remains likely over coming days and weeks.

S&P Futures Lind-Waldock

Speaking of the 200-day moving average, now that even the buy-and-hold crowd has become enamored with this most simplistic of market-timing strategies, the pop above the 200-day moving average isn't exactly the tightly kept secret of technicians that it used to be. Rather, it's the kind of thing that might as well be pictured on the cover of Time magazine as the Big Bullish Sign of the Year, with the story that says, "Time to buy, as the market is back above its big hurdle: the 200-day moving average."

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At the time of publication, Schiller long mutual funds up to 15% levels, holding bearish credit spreads in SPY and DJX options, although holdings can change at any time.

Dr. Harry Schiller is a Registered Investment Advisor with the California Dept. of Corporations. He holds a Series 7 General Securities license as well as a Series 4 Options Principal license. He has been owner and editor of the Short Term Consensus Hotline since 1988. For more information, see www.harryschiller.com. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.