The S&P 500 (SPY) reached the 5000 mark this week. In fact, I thought it might be a little insufficient, and in last weekend's article the sentiment was becoming “too optimistic” just as seasonality was turning negative. Obviously this was not the case and bullish technical data took away my speculations.
I still think we might get a fix in February, but maybe I'm thinking too much. There have been 14 weekly closes higher in the last 15, which hasn't happened in 52 years. Add in the fact that the S&P 500 gained 20% in those 15 weeks, and this is the first time this has happened. This is an unusual environment and no one can predict how “crazy” things will get.
This week, I will once again identify key points where the S&P 500 should resist declines if the uptrend is to stay strong or fall into overthrow. Rather than speculating on tops, we can move to neutral/bearish when there is real technical evidence to do so. Various techniques will be applied across multiple time periods in a top-down process that also takes into account key market drivers. The aim is to provide an actionable guide with directional bias, important levels and expectations for future price action.
S&P 500 monthly
The February bar has moved far enough that a return below the January 4931 high would be considered a red flag. A fall below 4853-61 would signal a real bearish shift.
As mentioned last week, seasonality in February is weakening and the S&P 500 has only closed higher 50% of the time, while it gained over 10% in November and December and also closed higher in January. Additionally, the second half of February is one of the weakest two-week periods of the year.
Now that the S&P 500 is in “blue skies” and hitting new all-time highs, Fibonacci extensions and measured moves act as a guide for the targets. After almost fifteen years of drawing Fibs, I found some works much better than others. The 1.13% extension to 4991, for example, is not something I have much confidence in. However, the 200% extension of the July-October correction in confluence with the 90% measured move (90% is a metric I use a lot in Elliott Wave) could be more significant. This happens at 5107-5110.
As mentioned earlier, 4853-61 is a significant bearish level. 4818 is the next major level to the previous all-time high.
There will be a long wait for the next monthly signal from Denmark. February is measure 3 (of 9 possible) in a new upward exhaustion count.
S&P 500 weekly
For the fifth week in a row, a strong weekly bar has formed with a higher low, higher high and higher close. A follow-up is likely again in the first half of next week.
The rally has now reached the top of the channel at 5025. can There will be a reaction at some point next week and we will be able to watch closely for a change in character. Once again, a key change would be new weekly lows on Thursday and Friday instead of the new highs we continue to see recently.
Channel resistance is around 5025. The same Fib targets from the monthly chart apply so 5107-5110 is the next target.
There is no major weekly support nearby, with the small weekly gap between 4842 and 44 being the first significant area.
A rising exhaustion count in Denmark will be at measure 6 (of 9) next week, so no exhaustion signals will be recorded. A reaction is usually seen at weeks 8 or 9.
S&P 500 daily
Friday's strong session crossed the 5000 level convincingly and closed right at the high. This move is expected to continue, at least early next week, and 5,000 now provides short-term support.
The rally reached the top of the daily channel from the January low as well as the large weekly channel. So far, every time it has touched the high level of the channel, it has pulled back slightly or paused. Breaking the previous day would be a change worth noting.
Aside from the dual channels at 5025, there is no resistance.
5000 is the first support, but is irrelevant to the health of the trend. 4975 is more important and a break through this level would take some of the more bullish options off the table (but would not yet confirm the existence of a top). Channel support is around 4930 on Monday and is increasing by 10 points per session.
An upward exhaustion count in Denmark will be at measure 8 (of a possible 9) on Monday, meaning we could see a reaction on Monday or Tuesday.
This week has been particularly calm. Fed speakers said nothing new, the data was consistent and the bond auctions were unremarkable. CPI revisions on Friday balanced with no significant changes.
Next week should bring more action as the CPI will be released on Tuesday. The big question is whether the rise in economic data in recent months will be reflected in inflation figures. The next big question is whether this really matters for the S&P 500. After all, the recent trend of rising yields and declining odds of Fed easing hasn't dampened the recovery at all. I think these things are still important, but it may take some sort of jolt to get the market to listen.
Retail Sales, Empire State Manufacturing and Unemployment Claims will be released Thursday.
PPI and consumer sentiment are released on Friday.
Probable moves next week(s)
The S&P 500 surpassed 5,000 and closed the week strong. Friday's action offers a good chance for a new high above 5030 early next week.
That said, the rally faced some resistance at the top of the weekly and daily chains. With a daily exhaustion signal set to come into effect Monday or Tuesday, there is reason to believe a new high above 5030 fails.
How any failure plays out will be important for the rest of the week and potentially the entire trend. Recent declines and corrections have been minimal. Often all we see is a daily “inside bar” before continuing higher. In the most bullish scenarios, the 5000 level should be maintained.
The bears could gain ground with a breakout of 5000 and, more importantly, 4975. More importantly, look for new weekly lows on Thursday and Friday and a close at the weekly range low. This would constitute a change of character and provide much-needed evidence to support the most important speculative calls.