It was another impressive week for stocks. The market raced higher with the S&P 500 closing above the 1,400 level for the first time since 2008. Financials helped lead the rally thanks to a positive response to the Fed's stress tests results. The financials are the best performing sector with +20% gains for the year and it's only March. As stocks rallied the volatility index (VIX), often called the "fear index", fell to multi-year lows. There is speculation that the bond market has topped with a sharp decline this past week sending yields to four-month highs. Analysts are wondering if we could see a flood of money come out of the bond market and into equities. At the end of the week the S&P 500 is up five weeks in a row and up 10 out of the last 11 weeks.

There were a number of economic reports last week. I'm just going to touch on the highlights. February retail sales results rose a better than expected +1.1% from an upwardly revised +0.6% the prior month. The consumer price index (CPI) rose +0.4% in February with core CPI up +0.1%. The producer price index (PPI) was also up +0.4% while the core PPI rose +0.2%. Both reports were relatively benign and within expectations. The Philly Fed survey rose from 10.2 in February to 12.5 in March. The good news continues with the New York Empire manufacturing survey rise from 19.5 in February to 20.2 in March. Analysts had been expecting a decline in the Empire survey. The weekly initial jobless claims fell -14,000 to 351,000. One disappointment was an unexpected drop in Consumer Sentiment for March, which fell from 75.3 to 74.3. Economists had been expecting a rise toward 77.0. Meanwhile overseas we saw Germany's ZEW investor confidence survey surge higher from 5.4 to 22.3. Analysts were only expecting a rise to 10.

One of the biggest events for the week was the FOMC meeting on Tuesday. The Fed left rates unchanged in the 0.00% to 0.25% zone and reaffirmed that conditions could call for rates to remain this low into 2014. There is a growing consensus that our improving U.S. economy is likely to delay any further stimulus by the Fed. Gold prices plunged following the Fed's announcement as the dollar rallied. I heard plenty of bearish comments about gold this past week but I'm not convinced. Short-term gold is moving lower but long-term the trend is still higher. You could argue that gold is forming an inverse (bullish version) of a head-and-shoulders pattern. If you are willing to stomach the volatility in gold then a bounce off the bottom of its prior bullish channel (see chart below) could be a bullish entry point. It could also be the right shoulder to that inverse H&S formation. Looking at the GLD, the H&S pattern would forecast a rise to $200 if the ETF can breakout past $175.

Weekly chart of the Gold GLD ETF:

Major Indices:

It has been a pretty amazing year for the bulls. The S&P 500 is up +11.6% year to date. There has only been on -1% session and the S&P 500 has closed higher almost 70% of the time. The breakout past the index's late February highs quickly culminated with a test and breakthrough potential round-number resistance at the 1,400 level. There is no doubt about the bullish trend but the S&P 500 is now both short-term overbought and remains longer-term overbought with its +17% surge from its December 2011 lows.

Can the S&P 500 continue higher from here? Yes, it can and the next level of likely resistance is probably the 1420 area. If stocks see a correction I would look for potential support near 1375 and the 1340 level (near its 50-dma).

FYI: For the point & figure chart fans the triple-top breakout buy signal that started when the S&P 500 crossed the 1,270 level is now forecasting a long-term bullish target of 1,790. I'm not sure how much faith I would put into such a big target but it will be interesting to watch.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite continues to soar and is up +17.2% year to date. The breakout past round-number resistance at the 3,000 level is definitely a big win for the bulls. This index is hitting levels not seen since late 2000. Looking at the daily chart I am concerned that the bottom of the prior channel could become new resistance. If the market does see a correction we can look for support near 3,000 and near the 2,900 level.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index continued to bounce but it has failed to breakout past its February resistance. Currently the $RUT is up +12.0% for the year. We need to see the small caps reaffirm the rally or it will spell trouble for the rest of the market. You can see on the weekly chart that this index is testing the trendline of lower highs. A breakout past the 830-835 area would be another bullish signal for stocks.

Daily chart of the Russell 2000 index

Weekly chart of the Russell 2000 index

The last few weeks we have been paying attention to the transports. Dow Theory suggests that we can't have a sustained market rally without participation in the transports. During the month of February the transports were not performing well. Fortunately for the bulls the $TRAN index has produced a significant breakout higher. The five-week correction lower now looks like a bull-flag pattern. The $TRAN is testing its February highs. I would expect a little consolidation or pullback now before it breaks out higher. The wildcard here is oil. If oil starts accelerating higher it could put the brakes on any transport rally since fuel costs is a major constraint on margins for this sector.

chart of the Transportation Average

The Federal Reserve was not planning to release the results of their 2012 bank stress tests until Thursday. Yet JPMorgan Chase (JPM) let the cat out of the bag early when they declared a dividend raise on Tuesday afternoon. JPM said they were raising their quarterly cash dividend by 5 cents to 30 cents a share. Plus, JPM announced a massive $15 billion stock buyback program. This news ignited a fire under the financial stocks and the group exploded higher. Many of the major banks are up double-digit percentage moves for the week. You can see the XLF financial ETF has broken out past resistance at the $15.00 level. After such a big gain it might be time for a little dip to consolidate those gains. Odds are there will be investors waiting to buy that dip.

Weekly chart of the Financial ETF (XLF)

Another stock I feel almost obligated to mention is Apple Inc. (AAPL). The stock has continued to defy gravity. You could argue the rally has gone parabolic. Veteran traders know that these types of rallies almost always turn ugly when the move finally runs out of gas. I am aware that plenty of analysts still consider AAPL to be "cheap" given its valuations even at $600 a share. However, even if you buy the long-term fundamentals of the company the stock can still get ahead of itself. It's way past due for a correction lower. If and when AAPL does see a correction it will be very ugly for the broader market. Some market watchers have started using AAPL as a trader sentiment gauge. It is a stock that requires watching.

Daily chart of the Apple Inc. (AAPL)

Weekly chart of the Apple Inc. (AAPL)

It was very nice to have an entire week where the focus was not on Greece. The country could be back in the spotlight again with a debt auction for its CDS-backed bonds on Monday and its $19 billion debt payment on Tuesday. Honestly, I don't know enough details to know if the $19 billion debt payment is still there or if the numbers have changed given the debt swap/haircut deal that happened two weeks ago. The rest of the week is relatively quiet for economic data but we will see a number of reports focused on the U.S. residential housing market. Pretty soon the focus will turn toward Q1 earnings season in the middle of April.

- Monday, March 19 -
Greek debt auction for CDS-backed bonds

- Tuesday, March 20 -
Greek deadline for $19 billion debt payment
Housing starts and building permits

- Wednesday, March 21 -
existing home sales

- Thursday, March 22 -
Weekly Initial Jobless Claims
Leading indicators

- Friday, March 23 -
New home sales

The Week Ahead:

Looking ahead to this week the focus could turn back to Greece but I doubt it given the successful bond haircut deal two weeks ago that qualified the country for its 130 billion euro bailout. Odds are rising that the focus could turn toward Iran and the oil markets. Oil surged on Friday as war drums beat louder between the West and Iran. As part of the U.N.'s tighter sanctions on Iran the Society for Worldwide Interbank Financial Telecommunications (SWIFT), which handles 80% of international wire transactions, planned to cut off Iran from its wire transfer system on 4:00 p.m. this Saturday. This is a major event since most countries use SWIFT to purchase Iran's oil exports.

Further compounding matters with Iran were headlines on Friday that Israel's Prime Minster Netanyahu spoke with his cabinet ministers and they voted 8 out of 14 in favor of a pre-emptive strike on Iran's nuclear infrastructure. There is growing speculation that Israel (or the U.S.) could use a military strike on Iran before the end of this year and others believe it could be by the end of summer. U.S. Secretary of State Hillary Clinton allegedly asked the Russian government to warn Iran that the upcoming six-nation talks was Iran's last chance for a diplomatic solution before more aggressive action was taken. To pile on the pressure the U.S. Navy is sending four additional mine sweeping ships to the Persian Gulf. The U.S.S. Enterprise carrier group is also heading to the Gulf to join two carriers already there. Iran has claimed that the first thing they would do is shut down the Straits of Hormuz, which accounts for more than 33% of the world's oil tanker traffic. A military strike on Iran or Iran trying to block the straits would send oil prices skyrocketing higher.

Economists are already worried about what the rising price of gasoline in the U.S. will do to our slowly growing economy. Some parts of the nation are already seeing $4.00 a gallon gasoline. Every penny that fuel creeps higher is taking more and more money out of consumers' pockets. It is said that consumer spending accounts for 70% of the U.S. economy. If Americans are spending a rising amount of cash at the pump that leaves less money to be spent elsewhere.

We've hit the halfway point for March. We only have two weeks left before the end of the first quarter. Some of the talking heads on TV claim that plenty of mutual fund managers were caught off guard by the strength of the 2012 rally and they were underinvested when the year started. That means they are behind their benchmarks and could be compelled to chase stocks higher. The pressure to window dress their portfolios for their end of quarter statements could be overwhelming. This idea would suggest that stocks should continue to rise over the next two weeks even though the market is already overbought now.

Will we see and end of quarter push higher? To determine that I would focus on a few areas to watch. We want to see the small cap Russell 2000 index breakout past its February highs. We want to watch AAPL to see if it maintains its gains. We want to watch crude oil since rising oil will put pressure on transports and longer-term the consumer-discretionary names. To a lesser extent we can watch the financials but they are short-term overbought and probably need a little dip lower before they move higher.

- James