Signs of a Market Top

Editor's Note:

(...Intro music for Mortal Combat, actors ready? ...and "action")

"It has begun!"

Forgive me. Mortal Combat was a terrible movie but after weeks of suggesting the markets would roll over in the second half of April it's nice to see the market cooperate with us. Negative headlines from Greece to Goldman Sachs to the oil spill in the Gulf have ganged up on the markets and put a halt on the upward momentum. The increase in volatility combined with higher trading volumes is a good sign the market could be forming a top. Add to that the bearish head-and-shoulders pattern and it certainly seems like the long awaited market correction may have finally begun.

Naturally with stocks about to roll over this is not the place to launch new long-term bullish positions. We are adding new candidates to the watch list and I've updated a few triggers on the watch list to prepare for a market pull back. The last correction lasted about four weeks. This one will probably take a few weeks. We have time to sift through the market, identify the winners we want to buy on weakness, and wait for our entry point.