U.S. stocks have moderated the last few days after trading up into prior resistance zone (red shaded rectangle, lines and arrows)in the 1,370 to 1,420 area. Given the fairly uninterrupted advance over the last six months it only makes sense that the broad market, as measured by the S&P 500, would stall in this area, which incidentally also kicked off the start of the 2008 sell off.
Weak jobs data, North Korea conducting a nuclear weapons test, possibly this week, rising gas prices and rumblings out of Europe again on the debt situation will no doubt be bandied about as the market pauses/digests here. The bottom line is nothing goes straight up forever and after a solid rally, stalling at a prior resistance area makes rationale sense.
We believe at this juncture, pending new data to examine, that recent weakness is part of a healthy pause and will continue to build the “Wall of Worry.”
Click to enlarge:
As seen in the monthly chart above the S&P 500 is stalling in the 1,420 to 1,370 region (red lines, arrows and rectangle). This is the area where the market broke down in 2008, so it also serves as pychological ressitance as well. On the daily S&P 500 chart on the next page we examine possible supports.
By Kevin Lane, Fusion Analytics Research Partners LLC