The S&P 500 cash index (SPX) closed at 1310.87 on Friday, up 34.53 points on the week for a net weekly gain of about 2.7%.
In the past week good earning reports from Pfizer and UPS and good economic reports on Thursday — first time jobless claims dropping more than expected, strong retail sales in January, and the official unemployment rate falling to 9% — all contributed to optimism about an economy recovery.
This week we expect the SPX could continue going up in the early part of the week, but then the price might pull back down for small correction later.
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Based on the weekly chart, the uptrend remains intact, and wave iii of sub-wave 3 in the C wave hasn’t completed yet. Even though the trading range was not large, the rally continues to hold for both the long and intermediate term.
For the intermediate term, SPX remains in an uptrend and there is still no intermediate term selling signal given.
As long as 1270 line holds SPX up, the uptrend will remain intact. Only if the price breaks below 1170 level will the trend be forced to change direction. But the Federal Reserve’s QE program will not allow that to happen for the time being.
For the short term, the SPX approaches our CIT day Feb. 8.
Around our CIT day, the SPX could make a temporary short term top around 1325-1330 and then reverse for a small correction in the following days. The correction may last 7-8 days, but if the correction does occur we expect the stop before it reaches the 1275 line.
Market sentiment remains bullish even as market risk increases. While many fund managers are still buying stocks, the volume on rally days remains relatively low in comparison to down days.
This has become a frequent pattern: price advances on low volume, followed by declines on high volume, followed by more advances on low volume.
The ongoing price behavior is unusual and the Fed’s continuing PMO activities are the probable cause. Despite the Fed price-pumping activities, this market is not immune to a natural price correction. Be careful of the long side at these prices.
Monthly resistance 1350 and support 1250; Weekly resistance 1325 and support 1270.
