5 Reasons the Market is Ripe for a Pullback

 New York, Otc.5, stock picks .- To the casual observer, it must seem as if the market has been trending in only one direction — up –since bottoming out in March 2009. A gain of more than 100% in the S&P 500 since that bottom surely gives the impression of a bull market, one that appears to have perked up in recent weeks and months.

But the market doesn't actually move in a straight line, it moves in waves as investors take a herd-like mentality to buying and selling phases. Though the S&P 500 rose an impressive 81% from the March 9, 2009 intra-day low through April 2010, here's what's actually transpired since then…

Solid upward moves have invariably been followed by double-digit pullbacks. Some might suggest that the upward moves of 81%, 33% and 27% between April 2010 and March 2012 mean that the current 15% gain from early June suggests more upside before the next pullback. Yet these rallies are coming on ever-higher levels for the S&P 500.

Simply put, it was easy for the S&P 500 to show solid potential upside when it traded at 700, 900 or 1,100, but the current 1,462 level means this is no longer an underdog market. And those double-digit pullbacks noted above: They all took place in a matter of a few months. In effect, the market can go down a lot faster than it goes up.

I took a bullish stance to this wave action back in early June, noting that it was time for investors to take advantage of the recent 11% pullback and focus on a half-dozen market positives. Indeed the market ended up putting in a seasonal low just a few days later.

Now, with the subsequent 15% gain, which works out to be a 45% move on annualized basis, it's prudent to think about what could go wrong in the months ahead. Serious hurdles remain in place, which the market has ignored in recent months, but the market's mood can change on a dime. 

Here are five reasons to be increasingly distrustful of this rally: ... Continue to read.