A couple weeks ago, the S&P just barely hit a new high at about 1902 and reversed. That move actually negated the potential head and shoulders pattern that had been forming. Because of that, the S&P targetted 1925 in the near future.
With the S&P breaking to new highs in the last few days, our new target is now 1925 – 1930 on the S&P. We could push further, but I do think it’s likely that the market will take a pause if that number is hit. And in fact, we could well hit that target tomorrow, it’s only 5-10 points away.
Next week could well be a hold week or pullback week given China data over the weekend and the possibility that the ECB will lower rates next Thursday. What the reaction will be is hard to say. Lowering rates could well cause the Euro to fall, which in turn means that the dollar will rise relative to the Euro. Theoretically this is a negative for the US economy, but at this point, it’s a very small negative. Interestingly enough, the effect on bonds could be good for stocks. With the Euro expected to fall, investors may have been parking their money in US bonds. Once rates are lowered in Europe, bond yields may actually rise as fewer buyers park their funds in US Treasuries. Of course, these are not the only factors at play, and I will be the last to claim to know the bond market given that many more experienced people are quite confused by the recent drop in bond yields. So we shall see.
As a general note, this market remains bullish. The S&P is moving to new ever newer highs and the selling in high momentum stocks has paused. Small caps are at resistance, but it will be interesting to see if they stay below resistance. Conditions are also good for stocks. Worries about Ukraine and China seemed to have receded from the front pages, the economic data is mixed, but no real cause for alarm. Economists and Wall Street strategists remain bullish, and we are in the upswing, or rather “recovery”, from a very weak Q1. In short, liquidity is not yet over and there are no clear catalysts for selling.
I have hedged positions in the S&P and the Russell.