On October 5, the S&P 500 had its first close above 2550 at 2552.07. This past Friday the S&P 500 closed 2553.17. So since October 5th, the S&P 500 has closed above 2550 on four days and below on two days. What are we to make of this action?
Hundred point and fifty point increments are key levels of both support and resistance on the S&P 500. Why do these levels matter so much?
It is a natural level for buyers to commit new capital as it break above 2550 or sell on a break of 2550. We saw the above pattern play out on the move above 2500. It took eight days for the S&P 500 price to clear 2500 and never look back. Today is now the seventh day for the S&P 500 to trade right around 2550.
At 2:55 p.m. EDT today, the S&P 500 is at 2555.95 clearly holding above 2550. Key questions to me are will we close this week above 2550? Clearly, the Federal Reserve Beige Book release on Wednesday at 2:00 p.m. EDT and a speech from Federal Reserve Chairman Janet Yellen on Friday will be key catalysts to influence a hold above 2550.
It is interesting to note that volume at 2:55 p.m. EDT is below the yearly average at mid day for both NYSE and NASDAQ stocks. These data points tell us new money is not flowing in blindly to stocks today.
Since the beginning of the year, the S&P 500 has moved above both 2300 and 2400. In January, the S&P 500 intraday moved above 2300 on January 26th but closed at 2296.68. The first close above 2300 happened on February 9th and never looked back. So there really has not been a test of 2300 on a closing basis. Pretty impressive and this pattern resembles what we are seeing at 2500 and now 2550.
Meanwhile, 2400 has been a bit tougher to get and stay above. It was first tested intraday on March 1st with a high of 2400.98. The first closing high above this level then occurred on May 15th with a close of 2402.32. So it took two months to get a close above 2400.
On May 16th the S&P 500 closed at 2400.67. Then the index dropped below 2400 and did not get back above until May 24th at 2404.39. From this point on, it has not seen a retest.
So what will happen at the 2550? The likely outcome is some backing and filling on the 2550 level before it comes a natural support level like 2330 and 2400 have proved to be on the S&P 500. The ability to blow through 2550 would be impressive as we are in the middle of earnings season and often the S&P 500 stalls until the bulk of earnings are complete.
So we are in the camp of some backing and filling over the next couple of weeks before a move to 2600 will take place.
Geoff Garbacz is the co-founder and one of two principals in Quantitative Partners, Inc. (QPI). Geoff and his team at Quantitative Partners have over 36 years of experience on Wall Street. Prior to the formation of QPI in 1995, Geoff worked for The Robinson Humphrey Company from 1990 to 1995.
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