S&P 500 – February 28, 2010

The S&P 500 is trading just below the 1,110 [1104.49] area, which marks a 61.8% Fibonacci retracement of the Jan.19, 2010 high and the Feb. 5, 2010 low. There are many pundits who would suggest this indicates a continuation of the market rally from the recent lows and an eventual retest of the January highs near 1150. However, I believe we will continue in a narrow consolidation, much like we experienced in mid-November through mid-December 2009.

While negative headlines have not hurt stocks, the bulls could certainly use more favorable headlines to give skeptical traders reason to buy. With the run up to the 1,100 area from a low of 1,044 earlier this month, it appears retail investors remain more cautious now as compared to the run up to 1,100 in mid-October. For example, in the most recent weekly survey of the American Association of Individual lnvestors (AAII), only 36% of investors were bullish. In mid-October, 47% of the respondents in the AAII survey were bullish. Clearly, there was more optimism on the run up to 1,100 in mid-October compared to the current situation.