Is The Market Getting Tired?
On Friday, March 7, the S&P 500 Index futures reached another new all-time high at 1887.50, as well as its ETF equivalent S&P Depository Receipts (NYSE: SPY) at 188.96.
Interestingly, the high was made during the premarket session, shortly after the favorable payroll numbers were released. However, when the market officially opened at 9:30 am EST, it was greeted with with many more sellers than buyers. As a result, the index plunged off the open, but was able to recover and post its all-time high close at 1878.00.
The close was slight improvement over the previous day's and former all-time high close of 1876.25. The double close, within a two-point range, has taken on added significance in Monday's trading, as the both the premarket high (1878.75) and intraday session high (1877.25) are located in the exact same area.
So far, unrest in the Ukraine or an unexplained commercial airliner crash has not sent the market into a tailspin. Instead, the index is trending lower midday after an early morning decline that had the index down 13 points at its low for the day (1865.75).
This market action is in stark contrast to its reactions following favorable release from the January payroll figures. On Friday, February 7, the data ignited a furious 27-point rally with index closing just off its high for the day at 1793.50. The index held its ground the following Monday, but added another 31 points by week's end.
While the index has not posted a significant decline (currently 1872.00), it needs to mount a rally to clear the significant resistance at the Friday's all-time high close of 1878.00. If that comes to fruition, the index may very well follow the pattern from January and end the week over 1900.00.
Unfortunately, it is hard to identify what the driver will be to induce another leg-up in this prolonged bull market. With earnings season nearly complete, limited economic data on the docket, it will be up to the Wall Street analysts to formulate another reason for the market continue its incredible five-year run (and that is not out of the question).
If not, geopolitical issues will be at the forefront, and aggressive actions by the Russian government in the Ukraine will have a negative effect on markets worldwide. Also, any revelation that the downed airliner was an act of terrorism will exert downward pressure on the index.
As well-defined is the resistance in the index, the support is easily identifiable. With the three prior lows in the index located between 1867.75 and 1871.00, the breakdown to 1865.75 in Monday's trading may be a reason for concern.
If the current low is breached, it is difficult to find any minor support until last Tuesday's low (1843.50) and any major support until the spike low from last Monday at 1832.25. If it drops below that level, bulls will banking on the double bottom from February 14 (1816.00) and February 20 (1817.25) lows to end the decline.
Since calling the top in this market is often a futile effort, there will be one eventually. Therefore, investors should pay close attention the market action early this week, to determine whether or not the nearly identical closes from last Thursday (1876.25) and Friday (1878.00) have signaled a short- or long-term top in the index.
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