With last week’s marginal but additional upside squeeze in stocks, the S&P 500 has now managed to snuggle up near the 2012 highs, leaving both bulls and bears hopeful they will be proven right.

Given the importance of where this index now stands, allow me to walk you through the S&P 500 charts from longer-term to near-term and make the current crossroads in the index more translucent;

On the weekly chart we note that the index has risen well over 110% off the 2009 lows from the chilling 666 level up to last Friday’s close at 1472.  At this stage the  S&P 500 is ‘only’ about 7% from the 2007 highs, something many naysayers would have never imagined in their nuttiest dreams, even just 12 months ago.

A little more medium-term, on a chart looking back to the October 2011 lows near 1075, the index has behaved amazingly well according to technical analysis 101, unless of course one was fighting this rally.  In fact, the October 2011 through January 2012 period turned out to be one of the very best times for applying basic Fibonacci retracement levels to swing-trade this market.  The market routinely rallied for several months, then consolidated and each time the all so important 61.80% Fibonacci retracement level acted as support.

On the following chart, note the series of higher lows and higher highs, each of them having formed at the 61.80% Fibonacci retracement level of the previous swing.

And on the following chart I drew the swings a little more clearly;

Instead of walking through all of the swings drawn on the chart, let me focus on the most recent two.  The swing from the June 2012 lows up to the September 2012 highs has not yet hit its upside target, which I have at 1527.  After hitting a 2012 high in September, the S&P 500 corrected roughly 9%, until it found solid support at the swings 61.80% Fibonacci support level.  A simple extension of this move gets me to the target up near 1527, give or take a few points.

The next smaller swing from the November lows up to the mid December highs then retraced 61.80% in late December, where it again found iron support, leading to this most recent leg up to near the 2012 highs.

From a momentum point of view, the S&P 500 is certainly extended here in the short-term.  We would be wise however to keep in mind that overbought levels can hold for longer than many traders can stay liquid, and as such the mantra of ‘don’t fight the tape’ is front and center in my mind.  Additionally, medium term oscillators on the daily charts such as the RSI and the McClellan oscillator do have further room to the upside.

In short, the S&P 500 continues to act well technically speaking and while a minor correction may be overdue, looking out a few weeks to two months the index has a good chance of pushing higher.   If and when the index runs out of steam for a longer period of time it will become clear by looking at daily and weekly candlesticks and divergence between price and oscillators.

 

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