On both charts, the initial support level falls near 2041 (tested last week). As long as 2041 holds the bulls are in full control forcing prices into the 2150/2170ish area. The reaction to Wednesday’s Fed meeting suggests that the March 11th test of the 2040 area might have been the conclusion of a shallow pullback.
In previous pull-backs in the S&P we saw the RSI on a daily chart fall into the 30 to 40 area before the market recovered. Last week, we saw the RSI on a daily chart reach 40 before the indicator and the market reversed trends. We would have preferred to have seen a reading into the 30s because it would have been a more attractive set up for the bulls. Nevertheless, the path of least resistance should be higher assuming Greece manages to take care of business.
Although we believe the market will continue to grind higher to extend the post-Fed rally, looming event risk in Greece, and other areas of the world, should keep traders on their toes. If a fundamental shift in the European Troika negotiations, or a flare of violence in Ukraine, make their way back into the headlines, we could see reactive selling that brings the S&P below 2040. A break of this level would likely lead to a quick move into the high 1980s (as marked by an internal trend-line), and possibly even the high 1940s which would be a test of trading channel support extending from the December lows and through the January and February low. We aren’t expecting this to occur at this point in time but should these prices be seen, they will likely be temporary and could prove to be great opportunities for the bulls.
As noted, we believe the up-trend will eventually bring the market to the noted level near 2170 to 2180, but we doubt the S&P will push beyond such levels on this pass because as bullish as seasonals are in the coming weeks, they begin to fade as we get into the mid-summer months. Thus, if you are a bull looking for a target area to lighten the load, or a bear looking for a place to get comfortably bearish, the chart is suggesting 2180ish might be an optimal area.
When analyzing the S&P, we often look to the Russell 2000 index which is considered to be a market leader amongst futures traders. The Russell 2000 is a broad based small-cap index that can see substantial volatility; yet, during the most recent S&P decline it managed to grind higher.