March 26, 2010
Both the S&P 500 Index (SPX) and it’s tracking ETF the S&P Deposit Receipts (NYSE: SPY) reversed from substantial midday gains on Thursday March 25, and finished with fractional losses. Is this the end of the stock market rally?
The financial markets have been overbought for some time now. Profit-taking is part of any advance and we are experiencing this now. If markets become too overbought, the inevitable selling would be considerably worse. Better the occasional pull-back then a big decline.
Thursday’s selling, though a reversal from the day’s highs and certainly not a bullish event was also not a bearish outside reversal day. Such reversals have higher intra-day highs, lower intra-day lows and close at those lows. That was not the case Thursday.
There may be more selling ahead, but Thursday’s action does not point to a prolonged decline.
The SPX is still on track to reach its next resistance level, the 61.8% retracement for the entire bear market decline at SPX 1226.16. That is 5.2% above Thursday’s close at 1165.76 and is the target for the current advance.
The SPY is still on track to reach its next resistance level, the 61.8% retracement for the entire bear market decline at SPY 122.98. That is 5.4% above Thursday’s close at 116.65 and is the target for the current advance.
Disclosure: The Fibtimer.com (www.fibtimer.com) ETF Timing Strategy has a position in the S&P 500 SPDRs.