For Sunday, April 10, 2011                                       Go to Website
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Last week we wrote:

"The stock market again moved higher this week. Though oil prices continued to rise there were several firmer economic reports released that helped support equities. The S&P 500 Index - SPX ended the week right at the prior wave b high. This is important resistance and could result in some weakness early next."

This week:

Last week we wrote that the S&P 500 Index - SPX ended right at the wave b high (see daily chart below) and that weakness at this level could spill into this week.

After a full additional week of trading the SPX is still at about the same level, closing fractionally lower at the close on Friday.

We have the expected weakness, but we need to see both the wave b high and the prior rally high at SPX 1343.01 fall soon or there may be additional selling in coming days.

The congestion at current levels will break one way or the other and that break will point to the market's direction at least for the short term.

We have several reasons to look for higher highs next week.

First the U.S. budget impasse has ended in an 11th hour deal Friday night. That removes one area of concern for the financial markets, at least until congress starts battling over the 2012 budget which promises to be an historic conflict.

Second, next week begins the quarterly earnings reports and many are expected to be quite good. Good reports should propel stocks higher as they are announced.

Third, even small gains will push the SPX over its prior highs. That would be seen as a breakout by the financial news and investors. Small cap stocks are already at new highs.

On the negative side we have rising oil prices. Crude prices rose almost every day this week yet stock indexes did not collapse. But there is a limit to how much oil prices can rise before stock prices decline. We may be at or near that limit. We need to see a leveling off or decline in oil prices next week to keep stock prices rising.

The SPX has several resistance levels just ahead. Each could result in sellers taking profits. But bull markets always have resistance levels that are eventually surpassed. So we watch these levels for signs of reversal but while holding onto a bullish position for the expected upside gains.

The SPX closed the week above its 50-day moving average and again above the important 1305.32 resistance level which was the rally high back on August 11, 2008.

Note that the conservative S&P strategy never did issue a sell signal and has held its bullish position through the correction. This bodes well for the current new aggressive bullish signals to resolve to continued upside gains. The correction has been a shallow one and mostly based on news events. With those news events being somewhat resolved, the stock market is again looking at the economy and the economic indicators have been coming in positive.

We have labeled the waves in the decline to date as a, b, c. This could be a completed correction (it is already for the small caps) but the SPX needs to close (decisively) above Wave b at 1331 before that is confirmed.

The economic problems in Japan, from earthquakes to floods to nuclear catastrophe have taken a back seat in the news these past several days. But should the country begin to sell the U.S. debt they hold to meet their economic problems, it would have a negative impact in our country. This has not occurred, but it is something to be on the lookout for.

We also continue to watch the larger five wave pattern (encompassing August to February) in the daily chart below. Five wave patterns are typically followed by substantial declines. The current correction would not be nearly enough to fulfill this forecast but wave patterns can be more complicated than just a simple 5 waves.

We are still near a breakout which would soon end this correction. Small caps have already broken out and there is a good chance next week will resolve to the upside.

Conclusion:

The SPX is back above its 50-day moving average as well as above its 200-day average which is short term and long term bullish. The 50-day average is above the 200-day average which is technically bullish.

The target for this advance has been reached at SPX 1305.32, the August 11, 2008 rally high.

The SPX needs to make a decisive close above its prior high at 1343.01.

The SPX portion of this strategy is BULLISH and in the Rydex Nova S&P 500 Fund - RYNVX (or other bullish S&P index fund). The SPDR Trust - SPY can also be used.

S&P 500 Index (SPX) Daily Chart

S&P 500 Index (SPX), Weekly Chart

Nasdaq 100 Index (NDX) Chart Analysis

Last week we wrote:

"The Nasdaq 100 Index - NDX rallied and closed the week with a gain, but the below chart shows how this index has lagged both the big cap S&P 500 Index and the small cap Russell 2000 Index. We do have a buy signal for this portion of the Bull & Bear strategy but because the NDX is lagging, the signal was delayed until a bullish trend signal was issued this week."

This week:

A quick look at the below daily chart for the Nasdaq 100 Index - NDX shows it is lagging the stronger S&P 500 Index.

This week we had five days of congestion with a slightly downward bias. We have drawn a declining trend resistance line on the chart to show where prices are being stopped.

If we can make a decisive close above this line it will be seen as a breakout by traders even though the NDX has not made new highs. That would likely be a signal for continued buying in coming weeks.

The NDX still also has the wave b high to surpass and this level may act as resistance next week if reached.

The 50-day moving average appears to be acting as support now and the NDX closed right at this level on Friday.

As we discussed in the SPX analysis, there are several bullish events that will affect prices next week. The budget battle has been resolved, earning reports are set to be released and the expectation is for better than expected results.

On the flip side we have rising oil prices. If they ease off or at least stop rising we could see an earnings inspired rally next week. Otherwise, if they continue to rise, it will have a negative impact on stocks.

If the market rally continues, this portion of the aggressive strategy should begin to catch up to the other indexes. Typically the NDX moves up faster than the SPX.

Conclusion:

The NDX is right at its 50-day moving average. The NDX is above its 200-day moving average.

Next week may be critical for the NDX which needs to close above its wave b high in order to break out of its correction and confirm that this rally is the real thing.

The NDX portion of this strategy is BULLISH and in the Rydex Nasdaq 100 Fund - RYOCX (or other bullish S&P index fund). The Powershares QQQ Trust (QQQ) can also be used.