March 19, 2010
Both the S&P 500 Index (SPX) and it’s tracking ETF the S&P Deposit Receipts (NYSE: SPY) continue to move higher in a momentum rally that has not only broken out to new highs, but has considerably higher to go.
Financial markets are becoming overbought as buyers refuse to allow even a single down day, but though there must be short-term profit-taking soon, we expect the stock market to rally to at least the next resistance levels.
For the SPX, the next resistance level is the 61.8% retracement for the entire bear market decline at SPX 1226. That is 5.2% above Thursday’s close at 1165.83.
For the SPY, the next resistance level is the 61.8% retracement for the entire bear market decline at SPY 122.98. That is 5.1% above Thursday’s close at 117.04.
The 61.8% retracement levels typically are the make-or-break points for rallies. If we close above them there will be higher highs but a reversal at or just below SPX 1165 or SPY 117 would start a bout of profit-taking or sideways trading that could last several weeks or more.
Disclosure: The Fibtimer.com (www.fibtimer.com) ETF Timing Strategy has a position in the S&P 500 SPDRs.