By Jim Donnelly, Olson Global Markets
Amid a series of political difficulties, the advent of both the taper and Obama-care and with the naming of the successor to Federal Reserve Chairman Ben Bernanke imminent, the S&P 500 index (SPX) resumed its grind higher last week closing at 1,688. That being said, the SPX is now re-approaching a test of long-term trend line resistance now sitting at 1,732. Although overbought conditions are not now present on the weekly time frame, a bearish MACD divergence has been triggered on weekly charts with weekly stochastic studies still on a sell signal.
A slow but steady expansion in GDP, marginal gains in employment and a low inflation environment has helped ignite some consumer discretionary stocks such as automobiles. Others, particularly in the apparel sector, have been in retreat perhaps taking a back seat to the consumer demand for more costly purchases of durable goods.
An apparent agreement with Russian officials over the use of chemical weapons in Syria may have diffused a difficult situation for the U.S. administration, which could be a plus for equity prices in general. Equity traders may have already made an adjustment to a rise in 10-year treasury yields as well, particularly in the wake of the stronger-than-expected quarterly refunding auction held last week. And while the rancor over Obama-care is persistent and still present, worries over its implementation have likely been priced into the equity markets too.
As a result, the odds currently favor a move up to a test of key technical resistance in the 1,732 area, after which a correction (or digestive process) could then occur. Such an adjustment if it were to occur however, would likely be based on Q3 earnings which will begin to be announced in just a few weeks from now.