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Market Insider: Time for a Breather

The stock market took a rest Thursday, signaling traders that it may be getting ready to shake off some recent gains.

A trader on the floor of the New York Stock Exchange executes a trade with his NYSE E-Broker.
AP
A trader on the floor of the New York Stock Exchange executes a trade with his NYSE E-Broker.

The Dow finished down 7 at 9783, after drifting most of the day. The S&P 500 was at 1065, off 3 points.

"It's taking a pause," said one trader. "Some of these high fliers are putting on the brakes. A pullback would be healthy."'

Friday's market has no economic data to chew on, though the expiration of futures and options could spark some activity in the morning.

As stocks waffled, the dollar Thursday continued to weaken. Treasury prices rose, and oil and gold both moved lower. The government announced $112 billion in auctions of 2-, 5- and 7-year notes for next week.

David Gilmore, strategist at Foreign Exchange Analytics, said the next stop against the euro is $1.50 and that could come soon. The dollar slipped slightly to $1.4733 Thursday.

"Is the world much different in the last two weeks than it was in early August? Not really, but moves can take on a life of their own and we have a whole potluck of reasons why the dollar should be lower. and everyone can find the reason they like best," Gilmore said.

"When you have these momentum trades happening and leveraged speculators pressing the bet, it's early in the move and over time, real money will have to sell some dollars."

"I think we have a considerable way to go here. Clearly, we should be at $1.50 in a week or two, and at this rate, it could be by the middle of next week."

A surprise drop in weekly jobless claims Thursday to 545,000 and a better-than-expected jump in the Philadelphia Fed's index of regional manufacturing conditions continued the week's trend of stronger data.

The Fed also released data midday that showed American households saw the first improvement in their net worth in two years in the second quarter. Household net worth rose by $2 trillion to $53.1 trillion. The value of stocks and real estate attributed to the gain and household debt contracted for a fourth consecutive quarter to $13.662.

"It's a big deal, but it's not surprising," said Dan Greenhaus, chief economic strategist at Miller Tabak.

"We knew corporate equities were rebounding, but $2 trillion is a relative drop in the bucket…we lost $14 trillion."

Greenhaus said studies show that for every dollar gained in net worth, households tend to spend $0.05 so there could be some impact on consumer spending patterns.

Getting Technical

Scott Redler, a technical strategist at T3Live.com, said he thinks the stock market is ready to pull back a few percent, based on its recent behavior.

"Every time the market moves 30 points over the previous pivot high, we've been prone to a 3 to 5 percent pull back," said Redler. He said the 1074 reached Thursday by the S&P was one of those levels.

"The first time we made a pivot high at 1018, we pulled back in to 976. Then we made a new pivot high of 1038, and then we pulled in to 992. Now today's high was 1074. We are now 30 plus points above the most recent pivot high which typically has proven to be a good place to sell some longs if you've been buying the dips in this current trend," said Redler.

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"If the trend continues, the next dip that could be bought is 1040 to 1045...It's really just an uptrend. We've been in an uptrend and the uptrend hasn't broken," he said.

"When these moves happen, it's good…those have been profit taking zones for investors and shorting areas for trading pros."

Redler said technicians are eyeing 1100 as another key level for the S&P, but he expects it to retreat before reaching that point.

What Else to Watch

  • FDIC chair Sheila Bair, SEC chair Mary Schapiro and White House top economic adviser Larry Summers participate in a Georgetown University conference on the future of global finance Friday.

Questions? Comments? marketinsider@cnbc.com

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