Breakout Ahead for the S&P 400?
It's important to remember that markets alternate between cycles of range contraction and range expansion; otherwise known as trading range and trending markets. After range expansion, the market will usually trade quietly within a trading range, as it digests the prior move ahead of the next directional trend. Likewise, after a period of trading range activity, markets will usually seek a breakout opportunity that leads to new trending behavior.
We are currently seeing this behavior in the S&P MidCap 400 Index, also known as the $MID. The S&P 400 has trended steadily higher since bottoming out at 682 in February, reaching highs of 800 in the past week. This type of bullish advance usually paves the way for trading range behavior, as the market builds toward its next breakout opportunity. As a matter of fact, the $MID has been developing a clear trading range over the last three weeks, which spans from 780 to 800.
Typically speaking, ranges that form at highs after a bullish advance lead to breakouts in the direction of the current trend. Therefore, I will be watching 800 very closely for signs of a bullish breakout opportunity. A breakout from this range could lead to a move worth 35 to 50 points, which is quite a move for this index. Keep in mind, however, that a breakout in either direction can be highly lucrative, so keep an eye on 780 for signs of a confirmed decline as well.
Interestingly, markets usually see breakouts and trending behavior during the first week of a new quarter. Today, April 1st, marks the first day of the new quarter, which means this range could be gearing up for breakout/trending behavior in the coming week
Is $100 Oil in the Near Future?
After a volatile consolidation phase for the month of March, Crude Oil has begun the new quarter by pushing through the $84 resistance level. Although this is only one daily bar, the move above this level could be significant. In the chart to the right, I have marked the last time Crude passed through the $84 mark. You can see that the behavior leading up to the move was very similar to what we have just experienced – an initial test of the level and pullback, then the strong move to push through it. If history repeats itself, which is a major tenet in technical analysis, we could see a continuation move to the $100 in the next month or so. The big helping hand in the move that occurred in late 2007 was a weak dollar. While the dollar has shown some strength in the first quarter, weakness in the upcoming month could be just the assist that Crude needs to once again hit that major mark.
Gold: Gold has bounced off of its upward trendline and shown strength since doing so. Watch for a retest of the $1150 level.
Silver: It was a strong week for Silver as price has pushed well away from the $17 mark to the upside. The $18.20 level provided support and resistance over the last six months and it provides a good target if Silver continues to post gains.
Copper: Copper shot out of its consolidation and broke the 3.50 mark in this weeks trading. This provides plenty of clear air for more upward movement as the next major level of resistance is the $4.00 mark.
Heating Oil: Heating Oil is now testing the $2.22 resistance level after a solid upward move this week. It is still heavily correlated to Crude Oil, so keep an eye on Crude’s behavior in next weeks trading for an indication as to whether this resistance will hold.
Natural Gas: Although Natural Gas slipped below the $4 mark, it got a boost off of the inventory report on Thursday to poke back above this major level. The downward trend has been long and steady, but if $4 holds as support we could finally see some gains emerge for this very oversold commodity.
