The S&P-500 closed exactly at strong resistance at 1,999.99 to provide plenty of indecision for Monday. Will resistance fail or hold? In theory, when a stock or index stalls right at resistance after a multiday gain it means the sellers are trying to establish a goal line stand and keep it from moving higher.
However, Friday's high was 2,009 and that suggests the first line of defenders were mowed down and may not be too excited about getting back into the fight. The Asian markets opened slightly positive Sunday evening and the S&P futures traded down to -5 before rebounding. There is still a lot of darkness before Monday's open so anything is positive.
Last week we got the benefit of the month end retirement contributions to lift the market out of Monday's MSCI index rebalance dip at the close. The indexes finished the week positive but well off their Friday highs.
I personally believe the late afternoon selling was traders taking profits from the 10.5% S&P rebound since the February 11th lows. That is 10.5% in only 15 trading days. It only made sense to take some profits off the table before the weekend when anything can happen.
Market sentiment has changed. We have gone from a sell the rally mentality back to a buy the dip mentality. The Russell 2000 was the strongest index last week because of gains in energy stocks, biotechs and financials. However, in terms of the rebound it is still the lowest of all the major indexes having just barely reached the 38% Fib retracement while the Dow and S&P are already testing the 61% levels significantly higher. This suggests the Russell has room to run but remember there were three positive sectors pushing it higher last week. Oil prices are up again on Sunday so the energy sector would benefit if that continues. However, it remains to be seen how much further the financials and biotechs have to run.
The biotech sector is still very oversold and it has not reached even the short term Fibonacci retracement levels after a big rebound last week. The biotechs have a lot of losses to recover but the political commentary is pressuring the outlook for pricey drugs.
The Dow Transports may have run out of room with multiple resistance points at their current level. They have rebounded about 20% from their lows and are very overbought. With oil prices rising the transports are due for a rest.
The economic calendar is devoid of any market moving reports in the U.S. but the ECB meeting on Thursday could be a hurdle. Mario Draghi has implied many times that he may provide additional stimulus at this meeting. If he fails to follow through if could be market negative.
In my Option Investor commentary this weekend I discussed the potential for some early week profit taking given the various resistance levels in play and the overbought indicators such as the RSI on the charts above. If market sentiment has really changed then the profit taking may be light or nonexistent. Every morning dip last week was quickly bought and I would hope that trend continues.
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