The Wizetrade Stocks Blog

          The year is off to a strong start, albeit one day and on relatively lighter trading volume.  As indices go the biggest gainer today was the Russell 2000 followed by the Nasdaq and the SPX.  Breaking it down further the biggest sector movers were Materials, Energy, and Materials.  With the apparent follow through of the major indices today, continued positive economic announcements, and a looming earnings season beginning on January 11^th with Alcoa, the question remains "Where is the market going?"

 For now, it seems that in the short to intermediate term (1 to 3 months) the major indices will continue to follow the same track that they have been on for the last 9 months.  As of January 4^th the price levels for the SPX that I am watching to indicate a slowing of momentum are the most recent swing low on the daily chart dated December 08^th and 9^th 2009 at 1085.89, and prior to reaching that level it has to pass through 1121 which is the 50% retracement level of the entire bear market decline (to date).  The SPX did manage to break through this level going into the close on Friday, but clearly this was most likely motivated by year end tax selling, and the desire to not hold positions over a holiday weekend.  Another set of data I follow to filter trends is a set of moving averages which are the combination of the 12 and 26 period exponential moving averages (or EMA for short).  On the daily chart these two moving averages continue to demonstrate a positive relationship to one another, meaning that the 12 Day EMA is above the 26 Day EMA indicating that the short to intermediate term trend is still up.  Should price fall back below 1121, or the 12 and 26 Day EMA create a negative cross (12 Day EMA crosses below 26 Day EMA) then momentum would signal a negative turn, and attention would have to be paid to the lower boundaries that the market has tested over the last 3 months most notably 1085, and 1030.00. 

            As for technical areas above the current market that could act as headwinds, I have noted that there are many.  The first level to note is the swing low of 1136.15 from the week of April 18^th 2005.  The second level is 1145 which is a 61.8% retracement of the May 2008 to March 2009 decline (a smaller, yet more forceful portion of the overall bear market).  Beyond these two levels two more swing lows at 1168 from October 2005, and 1221-1223 from June and July 2006.  An important factor to consider about the 1221-1223 level on the SPX is that it also coincides with several other Fibonacci levels; also know as a Fibonacci or Fib Cluster. 

            Ultimately the general consensus is that the SPX is in a cyclical bull market, and historically they tend to last an average of 15 months, which means that we could see the SPX continue its advance for another 6 months.  As the market continues to march higher institutions will continue to weigh the potential reward versus risk in the market, and "fundamentally speaking" as long as the interest rates remain low, there is no clear and present danger in holding equities, nor does a "better" opportunity present itself institutions will most likely continue to pump up the market.