Moment of Truth for the S&P 500

Even though the week started on a down note, the S&P500 finished the week strongly by recording big gains on Thursday and Friday. The result was a third week of consecutive gains for this large cap index which closed up another 1.1%. Stock market volatility dipped, but only slightly, suggesting that investors and traders are still worried about potential price drops in the near term. And volume, during the week when prices rose, fell back somewhat, and this suggests that investors are not jumping back into the stock market with both feet.

Back in the real world, on Main Street, there wasn’t a lot of news to report. The labor market conditions index fell much more than in the prior month. And export prices also continued to slide backwards, which is bad for corporate profits. On the positive side, wholesale trade came in stronger than expected. And initial jobless claims fell back more than economists had projected. But keep in mind that of all major economic indicators, most job reports are lagging indicators in terms of predicting recessions. They tend to be at their strongest levels just as recessions are about to begin.

In terms of technical analysis, the picture for the S&P500 suddenly becomes very interesting. Now that a big chunk of the losses from January and February have been reversed, the question becomes—will the rally continue further and lead to new all-time highs, or will it sputter now that the traditional resistance levels are being reached (for example, the 200 day moving average is now directly overhead and will be an area where many stock holders look to sell in order to get out of formerly losing positions that were added in December).

So this is it—the big test that everyone will be watching carefully. The stock market’s direction for the following 1-2 months may be determined during the next 4-5 trading days. Stay tuned!

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