The S&P 500 cash index (SPX) closed at 1240.49 on Friday for a net weekly gain of 15.78 points, up about 1.29%.
The SPX closed the week on a very strong note. Basically it went up for the most of the day on Friday and closed above the high of November and made a new high for the year.
This week is a quadruple expiration week. We may see a minor pullback this week. But Christmas holiday spirits will continue driving the price up until year end. The trading range will remain narrow.
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Technical analysis
Last week, SPX broke the November high and kept going higher for the close. The price action is bullish and pushing price to the extreme high level for the remaining three weeks of 2010 is unavoidable. There are two reasons for us to expect the price to go higher:
The holiday season has started, and the general optimism will make traders anticipate cheerful prices … as usual. The price needs to stay high to bring hope and joy, and a ‘Santa Claus’ rally.
- SPX broke the November range and as long as the November range top line around 1227 holds the price up, SPX will try to reach its high targets.
- SPX broke the November range and as long as the November range top line around 1227 holds the price up, SPX will try to reach its high targets.
Last week’s breakout move gave confirmation that the wave 4 low has been posted and the SPX is now processing wave 5. The probable wave 5 target could be any of these numbers: 1246.13, 1267.33, 1291.97 and 1347.57. We see 1361.02 as the absolute maximum for this wave.
If we exclude the top targets for the rest of this year, we could easily reach 1246.13, 1267.33 and 1291.97 before the year end.
However before wave 5 completes, we may see a sharp decline and a decent correction early in the New Year.
Holiday season behavior is driven by human emotion and any unexpected external event can change people’s emotion quickly. And the current price is driven up by many unusual activities.
We are in extremely overbought territory (based on put/call ratio, which at one point was as low as 0.39), the market has just made what could turn out to be a fake breakout and a long-term double top, and people are deeply committed to the hope that the economy will get a lot better. If that hope fades, how much higher can SPX go?
Monthly resistance 1250 and support 1145; Weekly resistance 1250 and support 1200
