This Week Will Test the Resolve of S&P 500's Latest Move
With nearly a 5% bounce during the holiday-shortened week, there were hopes that Saint Nick would soon be here. But this is the week that will test the S&P 500's resolve.
– Yogi Berra
Now that the first food hangover has past and the annual face-stuffing, weight-gaining, season of overindulgence is upon us, investors are waiting to see if Santa is around the corner looking to bring tidings and good cheer. But as we know, it's up to the House of Representatives and Senate to find, agree, and pass a fiscal cliff resolve before the reindeer can even be harnessed.
Oxymoron: a combination of contradictory or incongruous words.
As we've been hearing since the election there might be a 'definite possibility of a violent agreement through intelligent government planning, political ethics and bureaucratic efficiency toward fiscal restraint and becoming deficit neutral.'
And some wonder why the markets have been so idiosyncratic. Two Friday's ago on November 16, the US equity markets found a short-term bottom after being down 9%-plus from the pre-fourth quarter high of 1,475 on the S&P 500 Index (INDEXSP:.INX). With nearly a 5% bounce during the holiday-shortened week, ending precisely at a 50% Fibonacci retracement (1,409) and what we'll call the 'election-break,' there were hopes that Saint Nick would soon be here. But it is this week that will test the resolve of this latest move toward the North Pole.
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Technically these types of violent bounces are short-lived and the majority are retested before confirming a change in direction. Conversely, as of Friday's half open day, the move seems to still have residual momentum within. The line in the sand for this technically important week will be at the Fibonacci 61.8% level resistance (1,425 to 1,430) where the SPX originally broke out into new highs back in early September. It is our firm's contention that this will command the action for the next few weeks.
All being said it's important for investors to take a lesson from another season just getting underway – hunting season. Don't shoot until you see the whites of their eyes as the risk may not be worth the return.
I will be traveling over the next few weeks on business and be at the Annual Minyanville Festivus Gala on December 7 in NYC with many other Wall Street professionals and investors. Feel free to let me know if you will be in attendance as we love to meet with our dedicated readers.
Hope this helps and finds you well.
Editor's Note: Read more at Tesseract Asset Management.
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