The SP500 Index Has Prevailed: How Not to Be Run Over by a Market Maker

So far so good. The SP500 has prevailed in that it has closed back above “my number” that I pointed out a couple of days ago when the market was stalling (see prior posts to the right).

So what was the pullback all about? The answer is that the market often pulls back to prices that investors feel are critical. It’s called a retest. A retest can be passed or failed just like..well, a test of any kind!

In this case, the market makers made nice money off what they love to call “the weak hands” that ditch their shares the moment potential trouble shows up. They take their money and then move the market back up enough to get the Bulls to bite again and the Bulls then buy back all the shares they just bought cheap and the market maker goes home happy with lots of money!

That is why you have to be careful about where you set your stops. If you set a stop in the market, they know where everyone is piling up, so it’s best NOT to put in an order for a particular stop if you can avoid it. They sometimes will see a bunch of sellers at say 10 cents below where the market is. All they have to do is sell into that and a whole bunch of stops start to go off. Then they buy back enough shares to entice the Bulls as I just mentioned and the bounce makes them money.

The survival of the SP500 restest means the rally is intact so far. There is a problem for the rally in the near term though. That is in sentiment. I published the AAII number summary and analysis this morning. Simply go to the “Read My Feed” button at SunAndStorm.com to read that entry; it’s the second one down. It’s important, because we could give up the gains accrued over the next days to weeks and end right back HERE!

One more thing. My FREE SP500Tracker™ newsletter will be out by Sunday evening. Don’t miss it.

Click Here to Subscribe to my FREE SP500Tracker™ and free “Tips”

Enjoy your day!

David

Standard Disclaimer: Remember, it’s your money and your decision as to how to invest it.

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