Is the S&P500 Heading to 2000?

Posted by Patrick Ceresna on Nov 13, 2013 3:25:00 PM

This past weekend Barron’s had two articles discussing raised bullish price targets: “Will a Stock “Melt-Up” Really Solidify?” and “Lifting the Odds for a Market Melt-Up”.  This is just a sample of many of the new articles that the media is openly discussing. There are  a growing number of analysts that are raising targets for next year to the 2000 level on the S&P500. In spite of my repeated bearish concerns the market still continues to relentlessly advance. 

stock market roller coaster

So can we hit 2000 on the S&P500? The answer has to be yes because in the markets anything can happen, but the more important question is about how realistic or probable it is for it to happen. At the start of the year almost every bullish analyst on the street set targets of 1650-1750 on the upside and to date they have been correct. The problem is that bullish analysts cannot have targets that are below the current levels, which means the bullish analysts must all raise their targets even higher to justify holding their investments.  This does not necessarily always lead to a new fairy tale advance. 

No better example of that are Apple shares back in 2012.  In January 2012 Apple shares started the year around $400.00 a share. Most bullish analysts had set price targets in the $600-$700 range which represented a very bullish 50-75% advance.  To everyone’s delight the stock rocketed to $640.00 in just 4 months.  Over the subsequent 6 months every analyst rushed to set $800, $900 and $1,000 price targets for the stock.  To feed everyone’s euphoria, Apple proceeded to rise to $700.00 a share and everyone was certain that everything was going to be blue skies from there.  Yet it was from that moment that Apple began a significant bear market decline that seen it wipe out all gains back to $400.00 a share over the subsequent 9 months. 

With that in consideration, recognize that the S&P500 could advance to 2000 like all the super bull analysts are expecting but if Apple has any less to teach, it is that the market can only be at its highest levels when everyone is most bullish. We, on the other hand, will respect the trend but we will unmistakably remain skeptical of its sustainability and cautious of the risk of a market correction when everyone least expects it.


Levels to watch S&P500 December 2013 Futures:

The S&P 500 has now tested the 1770.00-1775.00 area three times and is attempting to retest it again today. This week’s trend will be decided off this level.  If the bulls can breakout the market to new highs, there are measured moves toward 1800.00 on the upside which could see bullishness into Friday’s November options expiration. Alternatively, if the bulls fail to make higher highs, a reversal and retest of the 1735.00-1740.00 would be possible. If at any point the market has a legitimate breakdown below 1735.00, it would open the window for the next bigger picture correction or crash.  We will remain neutral for a few more trading sessions to see if the market will show its hand for the next market move.

Market Breadth:

Ceresna Market Breadth Index: Sell Signal Alert
52 Week Mean Price of S&P500: 1587 (183 points below market) (201 point peak 2 weeks ago)
Volatility Index: 12.95% (Already near year highs)
Number of Stocks Making 52 Week Highs: 226 
(Year high 894 Jan 2nd
Number of Stocks Making 52 Week Lows: 30 (Year high 504 Jun 24th
Number of Stocks Above 50 Day Moving Average: 61.11% (Year high 89.54% Jan 22nd)

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Topics: s&p500, market outlook, Market Levels

Will the Market Crack at this Level?

Posted by Patrick Ceresna on Nov 8, 2013 12:24:00 PM

Anyone reading our blogs over the last week is not surprised that the market is taking a breather. A pullback was overdue and we identified that 1730.00-1740.00 area as a level that would very naturally be tested if the bulls failed to break the market out. So what happened in the last few days? The market corrected lower to the support and is now using the Jobs numbers as short term momentum back toward the highs. Should we be concerned or on high alert?

Things supporting bulls:
  • The bull trend remains intact
  • Bonds are correcting as interest rates rise (short term)
Things supporting bears:
  • The S&P500 traded over 200 S&P points above its mean indicating that the market is overextended on the upside.
  • The leadership stocks (Tesla, Facebook, financials) have stopped advancing in spite of the index being at its highs.
  • Market sentiment is very complacent. 
  • Breadth indicators have rolled to give sell signals. 
So should we be on high alert? In the big picture, yes we should be.  On the short-term we have to have a more neutral stance as the market can still squeeze ambitious shorts (artificial buying). Today bonds rapidly declined (interest rates up) on the release of the Jobs numbers.  This defuses the immediate risk but does not solve the problem.  The best way to describe it is that we are standing at the bottom of a mountain looking at a rather large ridge of snow that if disturbed, could trigger an avalanche that would bury us all. Rocks are being thrown at the ridge, but surprisingly it does not give out. With everyone watching rock after rock being thrown, we start to believe that the rock will not be able to start the avalanche based solely on the evidence that it has not happened yet.  That breeds complacency.  The saying goes- a boxer does not get knocked out from the punch he expects. So complacently put your guard down, because a robust stock market rally like this can’t end badly, right?       
market conditions market breadth index 
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Topics: s&p500, S&P, market outlook, stock market, Market Levels

Pending U.S. Government Shutdown and S&P500 Market Levels

Posted by Patrick Ceresna on Sep 30, 2013 9:14:00 AM

The market has started the week with a gap lower. The looming debt ceiling remains the headline, and the risk of a U.S. Government shutdown continues to be tabled. To add fuel to that, there is now political turmoil in Italy which adds further fuel to the uncertainty in the two largest economic centers in the world. 

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Topics: s&p500, Market Levels, Government Shutdown

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