The week ahead is what ETF Stocks calls a bookend week. We say that because the market's recent ups and downs have established clear lines of support and resistance. Finding the top guardrail for the Dow, NASDAQ, and S&P 500 is easy, all you have to do look for each of the major indexes’ 52-week closing highs. If the trio manages to break-free from the upper restraints, then a continuation of the current uptrend is highly, HIGHLY likely.
Finding support on the bottom side is a bite more of a challenging task, but we think that we have the floor, at least for now, clearly identified. ETF Stocks sees the 50-day moving averages as the door mats for the S&P (1,517), NASDAQ (3,179), and Dow (14,024).
The good news is that the current set up of rising support and a flat top favors highs and resistance moving up. Think about it as a truck coming at a high speed towards one of those smart cars, sure a collision can be messy for both, but most likely the matchbox driver is going to get out of the trucks way. However, things can get dicey when the two collide; sometimes the small car plays the part of David and slays the current trend.
But, we don’t see that happening right now. The Federal Reserve has made it abundantly clear that they are motivated to pump, pump, pump the market up, baby. Ben Bernanke and the Central Bank cartels are all on the same easy money page. All that money is like water in a crack, it is going to follow the trail, and investors are beating a path straight to Wall Street.
Tiny Cyprus did its best to put the brakes on the runaway 18 wheels of momentum for US stocks, but a midnight hour deal was struck to save the Cypriot banks while you were sleeping Sunday night. If the deal goes through as planned and without much fanfare or actual flares from the public, the entire debacle will escape the memory banks in 5, 4, 3… Cypwhat?
Overall, ETF Stocks believes the current trend is showing signs of weakness; however, tired legs can still carry the marathon runner for the last five miles of the race, and that’s where we think we are at today. As best we can tell, stocks have peaked sometime in late March/April for the past four years, and we experienced a spring/early summer correction for the last decade. We suspect we’ll see something similar in 2013.
In the meantime, ETF Stocks sees the current trend prevailing until the NASDAQ is somewhere in the neighborhood of 3,350 – give or take 50 points.