S&P 500 Index (SPX) Chart Analysis

Last week we wrote:

"After a bearish start for the week, with Monday and Tuesday both closing on the downside, rallies on Wednesday and Friday pulled the S&P 500 Index - SPX as well as all the major U.S. indexes, back to almost unchanged for the week."

This week:

There was an increase in volatility this week but that volatility resolved again to the upside.
By week's end the S&P 500 Index - SPX had reached a new bull market high at 1569.19.

New highs are always bullish. Look for a "possible" blow-off rally to indicate a correction is in the works. There is a great deal of TV and online news coverage about the new SPX highs which may bring in those who are still on the sidelines.

And yes...there are still many on the sidelines who have distrusted this rally from the start.

The markets are approaching levels where a correction is becoming more likely. There is no way to know when this one will reach its end.

Looking at the weekly chart (below) you can see the last three rallies and this one is now approximately matching the duration and gains of the previous two. Profits beget profit-taking.

We are closing in on the percentage gains achieved in the November 2011 to April 2012 rally as well as the June 2012 to September 2012 rally. If history repeats, we may well see profit-taking over the next several weeks.

The stock market is in the midst of a momentum run. Any good news or even slightly positive news results in fast gains and bad news tends to be forgotten quickly. Typically such rallies move higher than anyone expects.

Looking at the economy:

On Monday, Bankrate.com released the results of a survey in which it asked consumers if they were feeling the pinch of the tax increase, which took effect Jan. 1. Of roughly 1,000 people surveyed, a majority—55%–said either that they hadn’t noticed the change or that it hadn’t affected them. But 30% said they were spending less as a result of the change, while 8% said they were saving less money and 3% said they had scaled back on their retirement-plan contributions.

On Monday the U.S. Treasury Department backed the last-minute deal that bailed out Cyprus. The agreement in Cyprus fully protects insured depositors, which is important, while resolving and recapitalizing troubled banks.

On Monday the Chicago fed said the National Activity Index had swung back into positive territory in February, led by production-related indicators. Its national activity index rose to +0.44 from a downwardly revised -0.49 in January. The three-month moving average slipped to a reading of +0.09 from +0.28. The data are weighted indexes of 85 different economic indicators, designed so that readings of zero equal trend growth, those over +0.70 indicate an increasing chance of sustained increasing inflation, and those under -0.70 indicate an increasing chance of a recession.

The S&P/Case-Shiller 20-city composite index nudged up 0.1% to take the year-on-year gain to 8.1%. The level is the highest since Sept. 2010, and the growth rate is the strongest since June 2006.

On Tuesday, U.S. Commerce Department said durable-goods orders climbed 5.7% last month to a seasonally adjusted $232.1 billion after a revised 3.8% drop in January.

On Wednesday, the National Association of Realtors said pending sales of homes declined 0.4% in February, while longer-term trends showed continuing growth. The pending-home-sales index decreased to 104.8 in February from 105.2 in January, but was up more than 8% from 96.6 in February 2012.

On Thursday U.S. Labor Department reported the number of people applying for new unemployment-insurance benefits rose 16,000 to 357,000 in the week ended March 23, reaching the highest level since mid-February.

The U.S. economy grew 0.4% in the 2012 fourth quarter instead of the prior estimate of a 0.1% gain, boosted by higher exports and business investment than originally believed.

On Friday, the Commerce Department said personal spending climbed a seasonally adjusted 0.7% last month.

Looking at the charts:

A quick note" This week Mark Hulbert wrote an interesting article on MarketWatch. He stated that at the lows of bear markets, market timing services are very popular, but that at the highs of bull markets, no one needs them.

We hope you realize that our services are not needed only for the short term. What good is a profitable rally if you lose most or all of it in the next bear market! Mark also tracks our timing strategies to verify results as an independent auditor in his monthly newsletter.

The SPX closed at a new bull market high. Above the 2007 highs. This completely erases all the losses from the 2007-2008 bear market.

Our expectation of difficulty surpassing resistance at the SPX 1555 level held prices in check for two weeks, but the SPX has now broken out and is in uncharted territory.

We do not have a target for this rally as the SPX has now surpassed our posted resistance level at 1555.57. But new highs are bullish and no one knows how high a bull market will go. So we hold onto our seat and go along for the ride.

Last week we wrote, regarding the SPX 1555.57 resistance level: "... does not mean a correction is imminent, only that there is profit-taking where it was expected. If buyers continue to pick up what the sellers offer, we could see prices move higher, and soon make a decisive close above this resistance."

There is strong support at the prior rally high at about SPX 1500 as well as at the 50% retracement support level at SPX 1456 and the 61.8% retracement support level at SPX 1430.

Momentum runs can go further than anyone expects. This is a momentum run and we will stay with it until it reverses.

The CBOE Market Volatility Index - VIX closed the week at the 12.70 level. Typically we look at VIX 20.0 as the dividing line between bullish (below) and bearish (above) markets. So VIX is very bullish at this time.

Conclusion:

The SPX has again closed at new highs, breaking out decisively above the May 2008 highs and now well above the September 2012 highs.

QE3 is in progress and is a stronger program than anyone expected, with open-ended printing of new money at the rate of $85 billion monthly (total of two programs) until full employment is again reached. "Never bet against the Fed" is an old rule. In this case the Fed has pulled out all the stops with the huge money printing QE3 program.

The SPX portion of this strategy is BULLISH in the Rydex Nova S&P 500 Fund - RYNVX (or other bullish S&P index fund).

S&P 500 Index (SPX), Daily Chart

Nasdaq 100 Index (NDX) Chart Analysis

"After starting the week on the downside, the Nasdaq 100 Index - NDX erased all the initial losses and even managed to close the week with a fractional gain. Though not a momentous week by any measure, still the index was able to erase all the initial losses and managed to again close above the important NDX 2782 level."

This week:

The Nasdaq 100 Index - NDX has finally broken out above the 2800 level that has held prices in check for a month.

Last week we wrote: "It would be bullish if the index were to close above this level of congestion next week. A close above NDX 2825 would be, we feel, a breakout."

This week's gains did not achieve the 2825 level we were looking for, but they came close. Next week we will be watching for that close above NDX 2825.

The NDX 2782 level is now acting as support. NDX 2754 to NDX 2739 are just below and are also support.

If you look at the weekly chart of the NDX, you will see that although there have been two periods of sideways trading holding the index back in this advance, the direction of the trend remains up.

There is no question about the trend, only the gains that will be achieved by it as it progresses.

Conclusion:

The NDX has made a breakout by closing above its April 3, 2012 rally high.

The NDX has continued to trade sideways, but this week made a fairly solid breakout above the sideways trading that has held prices near NDX 2800. The index closed this week at 2818.69.

We continue to hold the bullish position with the expectation that the NDX will eventually join the rally.

The NDX portion of this strategy is BULLISH and in the Rydex NDX 100 Fund - RYOCX  (or other bullish NDX 100 index fund).

Current positions are listed at the top of this report. Any changes during the week will be posted there. An emailed Fibtimer Alert will also be sent if any changes occur midweek (after 6PM but before 9PM) the evening "before" the changes take effect.

This strategy recommends both BULLISH and BEARISH positions. Please be sure you understand aggressive trading strategies before using bear funds. Please read About Using Bearish Positions before using this strategy.

We always suggest diversifying. Consider this strategy to be used for 20-40% of a diversified market timing portfolio.

IMPORTANT- If either the SPX or NDX portion issues a buy or sell signal, enter the bullish or bearish position with only 50% of the assets allocated to this strategy. Diversification is an important key to long term success.