The fundamental news is good – initial and unemployment claims are falling week to week, house prices seem to be stabilizing and the stock market is running.
So far, the turn of the calendar to 2012 has been a positive thing in our economy and markets. Looking at charts, we see that the SPY, an ETF that follows the movement of the S&P 500, has yet to have a down week this year. So, is it time to go in “guns a blazing” on the market? Do you dare jump on this runaway train so long after it has left the station?
Surprisingly, the answer to this question may be a resounding “yes”. Katie Stockton of MKM Partners is one of my favorite technical analysts who appears from time to time on CNBC. She had some interesting technical data to review yesterday. On March 14, 60 of the 500 S&P 500 companies were making new 52 week highs. She feels that we are close to a confirmed breakout as the S&P 500 has closed decisively above the 1370-1371 resistance level left over from the top of 2011. To confirm this breakout, she would like to see consecutive weekly closes above this level. She is not skeptical of the market’s bullish move as much as she is wanting to wait for confirmation to signal that further upside is likely. This helps investors avoid buying into whipsaws similar to what we say in May 2011. She feels that the next likely resistance level is 1440 which corresponds to the May 2008 high. Prior to this run, some analysts were calling for this level to be our high for the year. It looks as though that may be conservative now. Both the NASDAQ and the Dow Industrials have already risen through similar resistance levels on their charts. A break of the 1440 level shows a much higher resistance level on the S&P – all the way at 1525!
What would make Katie potentially bearish in this environment? If the S&P 500 were to have consecutive daily closes below the 50 day moving average which now sits at 1337. She said this could be the first “chink in the armor” of this bull run.
So, what is an investor to do? Here at OptionsANIMAL, we teach market participants how to continue to take part in this bullish run in the market while using options to limit the risk in doing so. The very flexible and dynamic collar trade is one example of a trade structure that limits downside risk while allowing upside potential. This knowledge is invaluable in helping protect profits while continuing to stay long and take part in further upside in the market.
Good trading everyone!