The S&P closed the week quite strong, the best since the April tops, up more than 2%. (click image to enlarge)
Above is the weekly ichimoku cloud chart which is our long-term road map. As can be seen, both the lagging line and the price remain in bullish territory. Notice a possible Head-Shoulders pattern is morphing on the chart. With the left shoulder and head already in place, we're looking for the S&P to rally toward 1,150 to complete the right shoulder. Perhaps the key is the lagging line, and it found support at 1,050 (I've drawn the red line on the chart). I would not get too bearish on the market until this support line is violated. In fact, you should lean on the long side as long this support holds. The 10 RSI is turning up from the oversold level. The slow stochastic is also turning up from the deeply oversold conditions.
Overall, the weekly ichimoku cloud chart paints a bullish picture for the S&P 500 index.
While the cloud chart shows a very optimistic picture, the daily 10 x 3 point & figure chart of the S&P paints a very pessimistic outlook. The price is currently trading below the central line in a Bollinger Band which suggests the trend is down and bearish. However, this is just a counter trend in an uptrend which had started since the 2009 lows.
The counter trend target of 940 is activated on the chart. Whether this target is achievable or not will tell us a lot about the health of the uptrend. Remember, failure to achieve upside target in uptrend while counter trend target that is met often signal the end of the uptrend. Notice, there have been no downside targets met since the March 2009 lows, showing remarkable strong uptrend. This target would be completely negated with a close above the April highs 1,220. For now, the central line on Bollinger Band is our next resistance which is 1,110. As for the bears, it's clearly disappointing the chart has already reverses back up after fail to move even one box lower on a double-bottom sell signal. This is not good for the bears as it demonstrates lack of follow through.
On a daily basis, the S&P is finally above its 10 & 20 day moving average. The next biggest hurdle is the 200 day moving average which has proven to be a strong resistance two weeks ago.
The S&P 100 bullish percent index is finally reversing back to X's column, indicating the latest rally got legs.
Seasonality, July have not been kind for the bulls. Early July 2009 saw the S&P lost nearly 100 points. July 2008 saw one of the biggest correction in recent memories. The timing of the rally during this week is quite interesting. It seems the market is position to rally the next several weeks, perhaps back to 1,150, and roll over again in July? It's certainly a possibilities, perhaps not a high probability. But as long it's a possibilities, we must be prepared for it.
Bottom line - first and foremost, I'm placing 1,110 as the first key resistance level to watch. If we're fortunate to close above that, then 1,150 which is the 50-day moving average is the next resistance. In my opinion, with the momentum indicator - the bullish percent index - has just only turned higher, I'm placing a high probability that 1,150 target will be met.
