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The S&P 500 and Dow Jones Industrials remain below their yearly highs while the Russell 2000 and NASDAQ 100 have broken through significant resistance levels.  This “bifurcated” condition is typically not desirable and will very likely be resolved one way or other in coming days. 

All week, the S&P 500 worked its way up to and tried to close above the 1150 resistance level but failed to hold it at Friday’s close.  The markets remain extremely overbought and subject to a short term correction.   

As I mentioned earlier in the week, a break above 1150 would establish that level as new support and make the next target about 1200-1220.  These levels have been widely reported and widely anticipated and so are unlikely to occur, at least not when expected.  

Now, of course, the big question is “can the S&P clear 1150 and continue its upward trajectory?” 

Looking At My Screens 

By any measure, the general indexes and most sectors have entered a dynamic uptrend in the face of mixed economic news. 

Chart courtesy of http://www.stockcharts.com

In this chart we see the S&P well above its 50 and 200 Day Moving Averages and the MACD on a strong uptrend but with momentum weakening over the course of the last couple of days as the rally stalled this week. 

You can see the RSI approaching overbought levels of 70 and the Full Stochastic in overbought territory and rolling over towards a “sell” signal. 

The View from 35,000 Feet

It was a quiet news week and we’ve seen the S&P advance for nine out of the past eleven days.  Retail sales were up +0.3% for January, the 4th month out of the last five and wholesale inventories declined as the S&P hit its highest closing prices since October, 2008.   

Unexpectedly, consumer confidence declined to 72.5 from 73.6 in February while emerging markets put up their 5th straight weekly gain as confidence returned to the global markets.   

Two banks closed on Friday in Florida and Louisiana to bring the yearly total to 30 and we saw the anniversary of the March 9, 2009, bear market low.  In a remarkable coincidence, March 10, 2000, marked the high of the “tech bubble” with the NASDAQ closing at 5132, a level we have never remotely approached since. 

What It All Means 

As we’ve all heard before, the news is best at the top and worst at the bottom and in spite of recent positive signs, it still appears that a great deal of risk remains in the market. 

The Week Ahead 

This week will be the flip side of last week as we have lots of reports coming in, a Fed interest rate announcement on Tuesday and Quadruple Witching on Friday when stock options, index futures, index options and single stock futures all expire on the same day.  Typically Quadruple Witching weeks come with more volatility and everyone will be anxiously waiting to hear what the Federal Reserve has to say about the future course of interest rates.  

Major economic reports include: 

Monday: March Empire Manufacturing Index, February Industrial Production 

Tuesday: February Building Permits, February Housing Starts, FOMC Meeting 

Wednesday: February Producer Price Index 

Thursday: Initial Unemployment Claims, Continuing Unemployment Claims, February Consumer Price Index, February Leading Economic Indicators, March Philly Fed 

Sector Spotlight: 

Leaders: Sweden, Shipping, Indonesia 

Laggards: Commodities, British Pound 

This weekend I’ve been in Seattle with my wife and young son for the Senior Sectionals Swimming Championships which is comprised of kids from the 10 Western States.  It has been cold and rainy but still fun to see good kids doing good things.  My son is doing just OK which sometimes is better than blowing away the competition in terms of lessons learned.  The world keeps getting faster and the same is true in our world of investing and trading where we face stiffer and smarter competition every day.  I look forward to continuing our work together as we come to the end of the 1st Quarter of 2010.

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All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

All information presented herein is for general information only and deemed to be from reliable sources, but we cannot guarantee its accuracy. Readers are strongly advised to check with their investment counselors before making any investment. There is risk of loss in all investment activity.