S&P 1144 Is Here: Who Will Win the Battle?

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Includes: DIA, QQQ, SPY
by: Wall St. Cheat Sheet

The ‘September Squeeze’ continues to frustrate the bears. Gold is elevating to new all-time highs. Lapsing time further away from the Great Crash is becoming an integral part of the market healing process. The financial markets heal with restoration of confidence, improving numbers and more reasons to trust the rally. But, does the market need more time to heal? Warren Buffett declared the U.S. will not experience double-dip suffrage. Economists are slapping an official label on the end of the recession.

On a technical note, the two prior S&P peaks witnessed in June and August were topped this month as the S&P is now in price territory not seen since May earlier this year. May’s flash crash left a very memorable mark of fear in the minds of investors and traders. A choppy S&P pattern of fear followed for 3 months. Finally, a breakout is forming and momentum is building to the upside. Are markets overbought in the near-term territory? It’s very possible the S&P is ahead of itself rather quicker than expected. As we all know, the markets do not act and react perfectly. With a 10% rally off of S&P 1040, the current S&P level is increasingly deviating above the 200-day and 50-day moving average and usually cools off, as evident by the 1144 pullback this morning: (Click to enlarge)

Is the recent S&P index jump an indication that individual investors and institutional funds are swapping back into equities following a strong U.S. quarterly earnings season?

Fundamentally, the S&P index P/E ratio is trading around 20 relative to a historical mean of 16. In order for a continuation to the upside to evolve, the bulls will need to build a base of support on a near-term technical pullback first, in order to breakthrough 1144 with conviction.

This week, S&P 1144 has already been challenged 3 times with no solid steam behind a continued rally. Also, the looming November election shadow still casts a gray cloud of doubt over the economic future of the U.S. and policies that shape action. As we continue to say, the current market is a selective stock picker’s environment.

So, in the meantime, don’t be a hater: stocks are NOT evil.

Disclosure: None