Bulls Nearly Assure Victory
The market moved slightly higher yesterday, which was a big win for the bulls. In the short term, 1280 continued to be strong resistance for SPX, but the long-term view is significantly more bullish after yesterday's big win.
With a little help from Jim O'Neill of Goldman Sachs (NYSE:GS), the SPX has an 86% chance of finishing the year positive if the index moves higher during the first five sessions of January. The move higher in the SPX yesterday meant that the first five days of January were for a gain, and solidified the bulls' chances of having another positive year in 2012.
The near-term market activity looks very bullish too. Long have I argued in favor of a bullish advance past 1301 resistance and this week could very well be the start of that move.
The 1280 resistance zone will likely be broken following positive earnings results from Alcoa (NYSE: AA) last night. Alcoa was the first major stock to report its fourth quarter earnings. Also, Alcoa is an important company to monitor since its primary product, aluminum, is used as an input in nearly all areas of manufacturing.
A strong showing from Alcoa is often a positive sign that manufacturing (cars, planes, soda cans) will increase in the upcoming quarters. And if manufacturing is increasing, then it's also likely consumer spending and employment will begin to improve soon thereafter.
While Alcoa didn't have a strong quarter, it was able to beat the consensus analyst expectations. And a better than expected number could also indicate that the experts were too bearish on the economy in the U.S., which likely did not even come close to the double-dip recession that was feared.
SPX will try to break out today, but I have my doubts that the index can substantially overcome 1301, which is the next area of selling pressure.
While the earnings were a nice bit of positive news last night (China also reported blowout import and surplus data, which has Asian indices significantly up today) investors will be more concerned with bank earnings. And JPMorgan (NYSE: JPM), the biggest of the big banks, will report this Friday.
Generally speaking, the indices often show a bullish advance ahead of earnings and this quarter will likely be no different.
I would prefer that SPX test 1301 and then consolidate between that level and 1280 until Friday. A move beyond 1301 is possible since traders may anticipate a beat by JPMorgan, but if the breakout comes on low volume, I will be very suspicious.
I remain bullish and view 1250 as a must hold support zone for the bulls in the short term. Swing traders should use 1197 as a must hold support level.
