Back in May I, along with many, felt that the SPX could reach as high as 1000. Now that we’ve crossed that magic number and you can hear the sounds of champagne being opened around the country, we must look forward. It’s important not to fall into the trap of ratcheting up your targets, believing that this insanity can go on forever, and lose many of your gains when the markets turn on a dime.
Take a look at the chart below and I think you’ll agree with me that the sell-off that took place from Oct 07′ – Mar 09′ was fairly servere. Some even may say historic or unprecedented, and yet that entire downturn the most consecutive weeks in one direction was 5. We are currently in our 6th month of positive returns. That in itself should tell you that we need to pause soon.
Staying true to my belief that the SPX would top around 1000, I’m going to fine tune that projection and say the 1015 area makes a lot of sense for 3 reasons. Yes we may pop a tad higher intraday, but I would be careful following the CNBC lemmings to their slaughter.
- Currently the 200 moving average on this monthly chart is at 1015.
- 38.2% retracement level is at 1014.
- 6 Consecutive months of positive returns is extremely overbought.
