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Market Timing

Thursday, January 24 2013
The title of this email was borrowed from an article on CNBC.  And, remember my blog post from last week?  ("Tipping Point for the Market in 1Q'13!")  Well, it's all about that.   The market (SPY) has gone up almost every day since the beginning of the year.  And, the SPY broke its "up pennant" pattern decisively on 1/18/13.  It seems to be headed for the SPY all-time high of $157/share (or about $1,570 on the S&P 500), made on 10/11/2007.  Of course, we can expect extreme resistance at $150 and above, as the bulls and bears fight it out.

The SPY crossed $150 today, but was beaten back by the bears right around the $150 mark (and almost created the dreaded "one-day key reversal pattern").  Some say the bulls are determined to move the SPY up to test the all-time high and others say the market is way "over bought" and overdue to fall back.  See excerpts of  what CNBC says below the graph.

Thursday, 24 Jan 2013 | 10:36 AM ET
Jeff Cox
Jeff Cox

The Standard & Poor's 500 crossed the last big, round number between here and a record high, a destination considered inevitable by some Wall Street pros.  Early Thursday trading saw the S&P 500 briefly pass through 1,500, just 65 points shy of its 1,565 record set in 2007.

A Bullish Start For 2013
Dan Greenhaus, BTIG; and Scott Sperling, THL Partners, discuss the market's recent rally and provide an outlook on private equity.  While many traders usually dismiss the big, round numbers as having little meaning from a fundamental or technical standpoint, eclipsing this mark could be different. 

"It's psychological more than anything," said Justin Wiggs, vice president of trading at Stifel Nicolaus. "If we stay above 1,500 it could bring some incremental dollars off the sidelines."  The move past 1,500 comes as investors have been showing more confidence in stocks, finally taking some of the $2.7 trillion lying dormant in low-yielding money market funds and pumping it into equities. Stock-based mutual funds saw $9.3 billion of inflows last week and $23.6 billion over the past two weeks, according to the Investment Company Institute.

The 1,500 billboard could become just a signpost along the way if current chart patterns hold up.  "We're already confirmed to go maybe not exactly to the all-time high but pretty darned close," said Abigail Doolittle, technical strategist at Seaport Group in New York.  That trading behavior has been significant within the context of the Federal Reserve's liquidity programs. The central bank has pumped nearly $3 trillion through its government debt-buying program known as quantitative easing, or QE.

Doolittle has issued bearish calls in the past and still believes the long-term picture of the stock market is troubling, but sees Federal Reserve liquidity driving the market now.  "It's going to be interesting to see how this plays out. It's unbelievable that the Fed has been able to pull this off," she said. "I applaud them because it hasn't collapsed yet, but I'll be shocked if there's not some severe market action to the downside, very similar to 2000 and 2007." 

While the round number are often dismissed, they can prove formidable barriers.  The S&P 500 struggled for three months in 2012 to clear 1,400, but once it did the average zoomed higher.  "If it was the first time we were hitting the big, round number it could represent resistance. We've already been through there a couple times," said Mark Arbeter, chief technical strategist at S&P Capital IQ. "The completion of some chart formations suggests we could have measured moves back up towards the all-time highs in the first quarter."

"This is a very frustrating market," said Kathy Boyle, president of Chapin Hill Advisors. "It's times like this when I feel like throwing in the towel. That's when I feel like I should stick to my guns."


Posted by: Dr. G. Paul Distefano AT 10:44 pm   |  Permalink   |  Email

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