The S&P 500 has been rising at a 38% annualized rate since the beginning of June, a pace that we do not believe is sustainable. Thus, with the S&P 500 down three out of the last four weeks and 2.5% off its September peak (a four-year high) we think investors should be prepared for a pause or correction in the stock market. There is no shortage of near-term worries fro stocks: another three weeks of uncertainty regarding the outcome of the election, the US fiscal cliff, Europe's ongoing financial crisis and recession, and China's growth slowdown. However, these concerns are widely recognized and have not prevented both international and domestic stocks from having a strong year. Furthermore, the S&P 500's primary trend is rising, the Fed and nearly every other central bank in the world is accommodative, and crowd sentiment is not at an optimistic extreme

David Fuller's view To date, stock markets have generally remained quite firm in their consolidations of earlier impressive gains. Europe, so often first to show weakness in recent years, has been a relative outperformer since late July. Upside key day reversals for the Euro STOXX Banks and Euro STOXX 50 Indices last Thursday have been followed by rallies back towards their September highs. While some temporary resistance can be expected near those levels, closes beneath this month's lows would be required to question seriously the medium-term upward trends currently apparent.

Interestingly, the S&P 500 has not maintained last week's dip beneath the late-September low near 1430. While this ranging consolidation may continue for a while longer, a close beneath 1400 would be necessary to indicate potentially significant deterioration in the overall upward trend evident since June.

(See also Monday's and Tuesday's stock market comments, particularly Eoin's chart review on the 15th.)