On the 22-year anniversary of the 1987 stock market crash yesterday, stocks marched to one-year highs, with the Dow Jones Industrial Index reclaiming the 10,000 level and the S&P 500 Index breaking through 1,100 (although it then declined again to fall shy of this number by two basis points by the closing bell).
First, some comments from regular contributor Kevin Lane, technical analyst of Fusion IQ.
"The S&P 500, which recently broke above a downtrend line (purple line in the chart below), is closing in on its 50% retracement level from the 2007 peak to the 2009 lows near the 1,120 level. This level may cause some minor profit-taking and retracement; however, only a move below 1,000, which would put the S&P 500 back below its recently broken downtrend line and near-term support, would be viewed as a negative. So, until a break of 1,000 occurs, price trends remain up and pullbacks are to be viewed as minor market noise. Again only if 1,000 is violated does the trend turn more corrective.
"We continue to wait to hear investors embrace this rally as a clue it may be nearing a near-term exhaustion peak; however, the overriding theme remains that the market "needs to correct" or is "way overdue" to correct. To further that point we talked to two investors last week that were still "uninterested" and "not invested" in the market even after this large run-up. Our rationale for their apathy is that they are still scarred from last year's collapse and made the assumption this rally was not real or would soon revert to the negative environment of 2008.
"Typically markets have this way of going to extremes to either scare all investors to the sidelines or seduce them to come back into the markets. The current run with its persistence is doing its best seduction routine to extract the last bit of capital from even the most ardent doubting Thomas.
"While we could be wrong we think the market will remain generally strong, defying consensus (as it has for the last three months), and entice the remaining sideline capital back into the pool.
