Everyone has figured out that the Dow Jones Industrial Average is a more difficult yardstick for the overall stock market because its price-weighted rather than market-weighted. But the S&P 500 Index, and therefore the SPDRs (NYSE: SPY), are the market. It was just in June and then again this month that resistance was coming into play at 925 and 950… yet the index is up 19 points today at 994.20 and suddenly we find ourselves within striking distance of the 1,000 mark. Hard to imagine when you consider that the index at the climax of the panic selling was down at the 666 handle.
So here is the question. How high can the S&P go before sellers win? The S&P has now recovered 50% from its absolute lows of March. We have smoothed out all of the trading from February and March to get a more clear picture now that we have escaped the next Great Depression. The index did reach the 832 handles even before the end of March. We are still up over 20% from April 1 on the S&P.
For us to find the last two trading days that the S&P 500 was at 1,000, we have to go back to November 4th and 5th of 2008. And before that, it is early October of 2008 also. We also have to consider that at the end of September, the S&P 500 was trading at 1,200.
Calling any absolute tops or absolute bottoms is a hard task. But near-term technicals do give readings that the market is getting toppy. Can that continue? Sure. As of the end of may there was enough cash on the sidelines to supposedly purchase 40% or the market cap of the entire S&P 500. Here is a chart from StockCharts.com on the S&P 500, and after that we added in some of own trading levels for how high the market can get according to some of those numbers.
Even if you take the fast and slow stockastic readings, these are now well above the 80 level despite a small pullback and leveling off in recent days. This figure will be different now, but the lats higher Bollinger Band was around the 1,020 level.
We will still probably see 1,000 on the S&P. A guess is that we might even see it after Friday’s preliminary Q2 GDP report. This in theory would also translate to a $100.00 on on the SPDRs (NYSE: SPY). We may even see more of a move. Many traders are now expecting a blow-off top. Those are generally followed by sharp profit taking. At least that is the read today…
Jon C. Ogg
July 30, 2009
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