One of the great jazz singers of the last century, Peggy Lee, recorded a song about the disappointments of life entitled “Is that all there is?”
“If that’s all there is,” she sang, “then let’s keep dancing, let’s break out the booze and have a ball.”
After the mini-correction in the long bull market in the S&P 500, the bears must be asking themselves the same question. Is that all there is?
For the first sustained correction since the early spring of 2011, it wasn’t much. The SPX dropped 198 points in 18 days, which constitutes a decline of a bit less than 15% in the Long March which has been this never-ending bull market.
And the bulls very quickly reclaimed 70% of that decline last week, and are likely to pick up a bit more this week. So Peggy Lee’s question is pretty appropriate.
Is that all there is?
It is probably all there is for right now.
All it would take to crash this market would be a couple of harsh words from the Fed about raising rates or ending QE.
But this week we have the Fed Open Market Committee reporting and Chair Yellen speaking. We have the end of the month with the usual window-dressing. And we have the mid-term elections the following Tuesday.
We simply don’t believe the Fed will allow any significant decline in the market this week, especially in view of the ruthless way they jawboned the market back up – leaving the Bears drowning in their own blood – when the Bull market appeared to be cracking.
The area to watch this week is 1980, which is a decision line for the SPX. A failure to move above it could lead to a retracement towards the 1900 level and a move back inside the 100- and 200-day moving average lines.
On the upside, a successful move above 1990 will be bullish, and the SPX could then be squeezed above 2015 again.
In a longer time-frame the post-election period is notorious for nasty surprises, and while November, with Black Friday shopping, and December, with the Christmas Follies, are usually pretty good for the market there are signs the U.S. retail economy is gasping for air this year.
Some six months ago we projected the high this year would be between 2020 and 2050. You could make a reasonable argument that the high at 2019.26 in September is close enough to fulfil that projection, and we don’t think we will see the market back down below the low at 1820.66 posted October 15.
We wouldn’t be surprised to see a new high made this year. But there is also a good chance the September high and the October low will define the range for the rest of the year.
Short Term Outlook
For the short term, the market we watch is the S&P 500 mini futures (current contract: ESZ4) and the options on the futures.
Last Friday ESZ4 gapped up strong at the open and held up for the end of day. The price action was bullish and the contract moved above the100-day moving average line. But the volume decreased by 26% from the previous day.
1960-62.50 is the monthly pivot zone and a decision zone. Moving above it will encourage the buyers to continue. Remaining below it will indicate the futures could pull back to test last Friday’s low.
ESZ4 has already recovered 70% of the loss from the September-to-October decline, and some buyers may want to take the gains off the table. We may see some profit taking and a little decline today and tomorrow, before the FOMC announcement Wednesday.
Major support levels: 1930-28.50, 1920-18.50, 1910-08, 1898.50-1900
Major resistance levels: 1975-72, 1985.75-88, 1998.50-2005
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