S&P 500 Index Aimed At A Retest Of Key Resistance?

By Jim Donnelly, Olson Global Markets

The answer is maybe. Technically, weekly stochastic and MACD oscillators remain bearishly positioned, with MACD clearly diverging bearishly away from price. Last week’s surge in the S&P 500 index (SPX), however, lifted it to a test of key trend line resistance currently at sitting the 1,410 level. A solid break/close above that level could result in an extension of last week’s rally, with a possible retest of key trend line resistance at 1,494 in the offing. Any further gains from that area, however, would catch many investors off guard, particularly heading into this year’s final weeks.

Optimism that an agreement designed to avoid the “fiscal cliff” before the end of the year was clearly a factor. A broad-based rally led by the homebuilders sector, a “cease fire” in Gaza, an upturn in Chinese manufacturing  and a rise in German business confidence were all welcomed news to the equity markets.

That said, the expectation that earnings could struggle next year amid sluggish economic growth, highlighted by a rise in taxes combined with a set of government budget cuts could limit upside gains in the S&P 500 index next year. Perhaps that is what the bearish divergence in weekly MACD (Moving Average Convergence/Divergence) is telling investors to be wary of.

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