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February 13, 2007

Focus: S&P 500

The S&P 500 is at it again: shooting straight up after feigning some downside action. The index popped a healthy 11 points and closed at the highs of the day. Based on intraday indicators (see below), the strength appears to be purely technical. I saw no particular news to drive the action.

On a daily chart, one can see that the momentum of this historic 2006-07 rally is certainly fading:

stock chart

Of course, momentum has been fading for weeks now, but new highs keep getting set. At some point, these technicals will matter, and I suspect they will then matter in a big way.

Zooming in to an intraday chart, we see that the SPX worked off bullish divergences in RSI and MACD by returning to a former support line, which can also be considered the neck line of a potential head-and-shoulders top:

stock chart

Opposing divergences are now in place with the index sitting in what should prove to be a resistance zone. If the SPX breaks higher tomorrow, thereby defeating resistance, new multi-year highs will be the nearly inevitable result.

Disclosure: None


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