S&P's Mark Arbeter believes the S&P 500 may be in for a critical test of its recent lowsThe stock market, more specifically the S&P 500, fell exactly to the Aug. 16 closing low on Monday, Nov. 26, and then popped sharply higher. While it was a major relief for the bulls, we would keep the effervescence in check, as we wait for what we believe will be a critical test of the recent lows.
After a correction or good-sized pullback, an initial burst higher many times runs out of fuel right near a concentrated area of resistance. The cement ceiling overhead is even more pronounced if many of the major indices run into this concentrated zone at the same time. That appears to be the case so we believe that once the candle burns out on this advance, then the market will roll over and head back to the initial lows.
The major area of resistance for the S&P sits right up in the 1490 area. This level has been both a key area of support for the market as well as an important zone of resistance since early June. It is somewhat amazing how many times this level has come into play over the last six months. It provided a floor for the S&P 500 on two occasions in June, then provided a ceiling for the index during two periods in September. The 1490 level then provided support in October and early November, before once again offering up resistance in mid-November.
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