an tSionna {11.15.10}

Stocks staged a break out after the elections and looked like they were going to post an assault on the 1300 level on the S&P 500. Then towards the end of last week they gave up the ghost, rolling over to decline just a bit over 2% from their highs.

Two things seem to have started the slump. One was a growing concern about the continuing debt crisis in some European countries {namely Ireland-deora ar mo chroi!), fears of a slowdown in China and some less than stellar earnings reports out of companies towards the end of the week here in the US. Yet stocks have been so over bought and so in need of either a pause or some kind of pullback that almost anything could have sparked the selling at this point in time.

We'll monitor the situation for clues as to coming market direction. The chart above {which you can double-click to make larger} gives some of the things we're watching. Right now I don't see anything to spark a higher level of concern based on what we currently know. Meaning that right now this decline looks like a simple pause in market direction after such a strong move. If this is in fact the case it should be viewed as a healthy development, likely to set the stage for further price apprciation as we head into year's end. Markets often correct 2-7% within stronger moves. It allows the short term froth to be removed. It also often allows disciplined investors to purchase attractive securities at lower prices. In investor jargon it is often called "the Wall of Worry".

However just in case this would morph into something more substantial, we do have our defensive portion of the playbook handy. Right now we're content to let our indicators be our guide.

*Long ETFs related to the S&P 500 in client accounts.