S&P 500 Target Reached

Back in May I, along with many, felt that the SPX could reach as high as 1000. Now that we’ve crossed that magic number and you can hear the sounds of champagne being opened around the country, we must look forward. It’s important not to fall into the trap of ratcheting up your targets, believing that this insanity can go on forever, and lose many of your gains when the markets turn on a dime.

Take a look at the chart below (click to enlarge) and I think you’ll agree with me that the sell-off that took place from Oct 07′ - Mar 09′ was fairly severe. Some even may say historic or unprecedented, and yet that entire downturn the most consecutive weeks in one direction was 5. We are currently in our 6th month of positive returns. That in itself should tell you that we need to pause soon.

Staying true to my belief that the SPX would top around 1000, I’m going to fine tune that projection and say the 1015 area makes a lot of sense for 3 reasons. Yes we may pop a tad higher intraday, but I would be careful following the CNBC lemmings to their slaughter.

1. Currently the 200 moving average on this monthly chart is at 1015.
2. 38.2% retracement level is at 1014.
3. 6 Consecutive months of positive returns is extremely overbought.

Comments

[stockartist:]

Unemployment is the wild card in this economy. Many economists feel that the jobless numbers will rise to levels that will derail the stock market's upward move and push it to much lower levels over the next year. The risk in the market out weighs the reward.

Aug 04 08:49 AM

[RiskReturnO...:]

38.2% retracement from March low to August high will take SPY back to around 880, a firm support that can set up a multi-year bull market ... if the unemployment rate peaks below 10.4% and consumer spending stabilizes to avoid a double dip recession ... best timing for long term bull entry point is October-November period, roughly 6 months before peak unemployment rate.

Aug 04 10:21 AM

[Benito Camela:]

The insanity of the bulls is the same we saw at the end of 2007.

The consumer will continue retrenching with lower income. Furthermore, savings should continue to rise getting closer to the 10% mark in order to rebalance household wealth.

The process will take several years. Anyone believing otherwise should study historical precedents.

Aug 04 12:02 PM