The S&P 500 ($SPX) successfully held the 1355 – 1360 support area. Once again, on the bounce last week, the 50 day moving average (blue) did not provide any resistance. Since the 1355 – 1360 area of support, there was no need to further reduce exposure.
The risks now seem equally weighted for the next few weeks for a continued rally, further correction or tight range bound trading. What is a sensible, risk based approach to committing your capital? Right now, do nothing. As long as prices stay above the 1355 area, there is no reason to sell. However, until the market can prove it can rally above 1420, why risk new capital? (orange delineations of range)
Occasionally I will turn on financial media coverage and see what some of the “experts” are saying. Fast Money last night on CNBC had a technical analyst give his take on where markets could be heading. He had a target of about 1250 on the $SPX, before mid summer. Personally, I am not that bearish when it comes to a correction. Our forecast is for a correction to hold around 1285 – 1310 area (green delineated area). Over the next 3-6 weeks the 200 day average (red) can drift up toward the bottom of this area. With two technical supports, this should be a good enough bottom to attract buyers. Maybe a dip below as a “bear trap.”
Conversely, there is not much to compel me to think the market will rally past 1420 before late summer. Technically or fundamentally. First we have to print above 1420. Second there is a lot of seasonality to overcome. Third, Operation Twist is ending and the economic news has not been bad enough to force Bernanke’s hand to try and add more stimulus. Additionally, with the Presidential election, one can guess there is a lot of market participants waiting to see what the mood of the electorate is before committing to more exposure to the markets.
This week will be a busy week. Chicago tomorrow and Atlanta Thursday through Saturday. Good trading!
Ternion Market Talk 