Monthly Bias: Working on a bull signal since last September. Weekly Bias: Positive, price of the S&P 500 closed back above its 4 and 12 week moving averages. Daily Bias: Positive, above previous range low and 20 and 50 day moving averages.
I start this week’s piece with a summary of the technical outlook of the market. The short/intermediate/long term technical outlook of the market had a turn for the better last week. The S&P 500 rose 2.70% for the week and now is down 1.01% for the month through the close on Friday. The S&P closed the week at 1313.80, up 5.20% from the low of the month hit two weeks ago of 1249.05.
The market has shown a great deal of resilience this year. Political upheaval, natural disasters, oil supply disruptions are just a few of the negative headlines we have had to deal with. The market has weathered several body blows, and we aren’t yet through the first quarter. We all took a few massive left hooks a couple of weeks ago. Many had to take a knee and an eight count to regain their senses. We adjusted our headgear and came back swinging last week. The events that gripped us a short while ago have faded into the distance. I haven’t heard a single word about Egypt lately. The situation there was the focal point of the market a short while back. Ongoing concerns over rising energy prices continued, housing woes and the aftermath of events in Japan created an atmosphere of outright fear two weeks ago. Volatility measures soared dramatically as investors, great and small, simply decided to reduce risk in their portfolios. Fast.
We saw a dramatic sell off on Tuesday and Wednesday two weeks ago. Several technical levels of support provided little comfort. 1275 was the key level of support that I was focused on. That level gave way mid week. By the end of the week the market moved decisively above 1275 and the positive tone of the market continued last week.
The rally last week was more pronounced than I anticipated. I did mention last week we should see a strong performance from metals in particular and commodities in general. Commodities performed well last week. The prior week’s sell off triggered several margin calls. In my opinion that lead to selling in the commodities area to cover margin calls. Gold could be weak this week as it failed to hold above break out levels reached last week. Silver continues to outpace gold. Silver rallied again last week. I am not sure if it will digest recent gains with consolidative trade this week but as I sit silver continues to be pristine on a technical basis.
So, where does this recent activity leave us? Range high/low need to be considered when mapping the technical landscape. A move above the range high of 1344 on the S&P 500 will signal another move higher in the market. 1332, the high for March will provide the next level of key resistance for the S&P. WE also need to get above last week’s high of 1319. 1248 is the range low. A move below 1295 on the S&P 500 and 11,970 on the Dow will be a short term signal that the recent range floors could be tested. Also, look at the 50 day moving average on the S&P 500, 1305. As long as the market remains above the 50 day moving average you have to give the bullish side of the argument the benefit of the doubt.
First quarter earnings season begins in a few weeks. The market will be increasingly selective at these lofty levels. Companies that give weak guidance will be punished severely (look at the reaction to poor guidance from Research in Motion (RIMM) last week).
As I said in the opening paragraph, the bias is to the upside. The technical picture is not as pristine as it was a few weeks back. Look to the support and resistance levels I gave above as points where you will see action pick up in the markets.
