TWTWTW: That Was the Week That Was: March 1-5
Last Monday, March 1, the DJIA broke through the 10,400 mark for only the second time since Jan. 20. On Friday, the Dow shot up right from the opening bell, broke through the 10,500 level early in the session, remained steady through mid-day, and then made another strong upward run in the afternoon. Better than expected jobless numbers played a part in the run, as did a report that consumer borrowing unexpectedly climbed in January. The Dow closed with a gain of 1.2.% on the day and 2.3% for the week. The S&P 500 Index was up even more for the week, climbing 3.1%, while the Nasdaq Composite took the weekly crown, advancing 3.9%. The recent rally rally in the SPX could be setting us up for a retest of the January highs in the 1,150-1,160 region. The 1,150 level marked highs in early 2002 and 2004, while 1,160 is the site of the SPX’s 160-month moving average. Should the SPX rally above 1,150-1,160, 1,200 would be the next major level for the SPX to overcome, as this is the site of the 80-month moving average and a major support level in July 2008. The 80-month moving average acted as a support after the terrorist attacks in September 2001, and a close below this trendline in May 2002 was a major sell signal.
With the Russell 2000 Index (RUT) closing higher in 16 of the past 18 days, the VIX declining in 17 of the past 18 days, and SPX chart resistance overhead, there is strong expectation for the market to take a breather.
However, it is also worth considering that there are periods when the market’s momentum can cause a “shorts” stampede. This can be huge for the bulls, as a combination of short covering and investors returning from the sidelines can provide a powerful combination in keeping the momentum intact. This week we discover which scenario plays out.
