The four week win streak came to an end last week last week, though barely. Still, all pullbacks start with a small step, and last week’s action may well be the beginning of at least a small correction.

So why the pullback? It’s all a matter of timeframes. In the long run, the good economic news should indeed translate into more bullishness for stocks. In the near-term (which is our primary focus from one week to the next), fear, greed, momentum, and excess movement drive the market. With that…..
Despite Friday’s 5 point gain for the S&P 500, it wasn’t enough to put the index back into the black for the week. The SPX still lost 2.4 points from the prior Friday’s close (-0.2%). The loss, however, isn’t necessarily the most troubling part of last week’s action.

No, the alarming part was last week’s tall doji bar….. a bar consisting of a relatively wide high/low range, and with an open and close that are essentially at the same level; the SPX opened last week at 1148.66, and closed at 1146.24. Dojis are problematic (for the bulls) in that they indicate indecision, and quite often also indicate a reversal. Almost needless to say, after four consecutive winning weeks, a ‘reversal’ can only be a pullback.

And on a side note, yes, Friday’s advance was made on pretty high volume, but there was more volume behind Thursday’s selling.

As we’ve said repeatedly now, a pullback from here doesn’t have to be disastrous. In fact, our bigger-picture indications suggest it won’t be. We’ve actually seen several bullish crosses of key moving average lines, any of which could/should act as support upon any dip.

All told, the likely worst-case scenario from here (for the S&P 500, anyway) is a revisit of the 1110-ish area. That’s not only where you’ll find the 50-day and 100-day moving average lines, but it’s also the mid-point of the Bollinger bands.

Of course, until the former-resistance line at 1130 crumbles, even that minor bearish move is on hold.

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