Does the Market Rally Mean We've Turned a Corner?

Online, September 16, 2010 (Newswire.com) - On September 1, 2010 the financial markets in the U.S. saw some huge increases. But does that mean we have turned a corner and are now in 'rally mode?" According to noted financial advisor Dennis Tubbergen, unfortunately that is not necessarily going to be the case.

Tubbergen, who is CEO of USA Wealth Management, LLC, a federally-registered investment advisory company, frequently discusses the U.S. and world financial markets in his economic blog and his Moving Markets newsletter.

"It's important to realize that history doesn't always repeat itself," notes Tubbergen. "Just because something occurred at some point in the past doesn't mean it will necessarily occur again. It's also important to point out that my opinion about the future direction of the markets may be wrong. However, based on a review of the historical evidence, I strongly believe individual investors should remain cautious at the very least."

Tubbergen goes on to point out that the rally provided a big day for the Dow Jones Industrial Average (DJIA) and the S&P 500, but given the context in which the rallies occurred, the rally might also serve as a red flag warning of a coming decline.

Noting that historical data is not always a reliable indicator of future performance, Tubbergen states technical analysts believe the study of past market trends leads to trading opportunities.

"Recently, major U.S. stock market indices like the S&P 500, the Dow Jones Industrial Average, and the NASDAQ Composite have formed a top head and shoulders formation," explains Tubbergen. "Historically, this formation has often preceded market declines."

Tubbergen's second point: In early July, the 50-day moving averages in these indices passed under their 200-day moving averages on the charts, an infrequent occurrence and one that has been reasonably accurate in predicting previous declines.

His third reason is several 'panic buying' and 'panic selling' days have recently taken place.

"In my opinion, out of the last 90 trading days through September 1st, 27 of these days were 'panic buying' or 'panic selling' days," concludes Tubbergen,.

"Is a decline imminent?" asks Tubbergen. "As I stated earlier, no technical indicator is effective 100 percent of the time. But based on a review of historical data, my opinion is that caution may be the order of the day."

For more information on Dennis Tubbergen's views, visit www.dennistubbergen.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.

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A Head and Shoulders Top Formation Is a technical analysis term used to describe a chart formation in which a stock's price: (1) rises to a peak and then subsequently declines, (2) then rises above the former peak and again declines, and (3) finally rises again, but not to the second peak, and declines once more. The first and third peaks are the shoulders and the second peak is the head. The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns
Moving Averages is a technical analysis term meaning the average price of a security over a specified time period.
Panic buying days are typically defined as a dramatic up day in the markets driven by a rapid increase in buy orders prompted by rising share prices. Prices rise so rapidly that investors 'jump in' and buy for fear of missing out or being left behind. Panic selling days are the polar opposite of panic buying days.