S&P 500 rally is overdue for consolidation and investors should brace for a pullback towards the 50-day moving average

Fear of heights

RTGAM


When stock markets rise for nine straight weeks in anticipation of an economic recovery some time down the road, there are bound to be some setbacks as investors take a long look at how high markets have come. Monday appears to be one of those setbacks - though of course it is impossible to know at this point whether it is a short-term blip or the start of something nastier.


U.S. stock index futures were down with about 30 minutes before markets open, suggesting that stocks will fall at the start of trading. Futures for the Dow Jones industrial average were down 79 points. Futures for the broader S&P 500 were down 12 points.


In Europe, the U.K.'s FTSE 100 was down 1 per cent and Germany's DAX index was down 1.2 per cent in afternoon trading. In Asia, Japan's Nikkei 225 rose 0.2 per cent in overnight trading.


There wasn't a whole lot of news driving the losses - although efforts by a number of U.S. financial firms to raise capital by selling common shares might be hanging over the market. As well, commodity prices were generally lower, which could weigh heavily on the Canadian market when it opens for trading.


Vincent Delisle, strategist at Scotia Capital, noted that recent improvements in employment data from Canada and the United States reinforce his impression that the global recession is in the late stages.


"As enjoyable as this winning stretch has been, however, the laws of physics should eventually catch up with this positive momentum," he said, in a note. "Near term, the S&P 500 rally is overdue for consolidation and investors should brace for a pullback towards the 50-day moving average." If he's right, the pullback would take the S&P 500 back to 809 from its current level of 929.


Longer term, though, he remains upbeat, with a 2010 target of 1,000 for the index.

Copyright 2001 The Globe and Mail