How High Can The Rally Go?

May 2, 2008

The S&P 500 Index – SPX rallied on Thursday, the day after what is likely to be the last rate cut for awhile. At the close, the SPX was at $1409.34, just a fraction below the 50% retracement level for the entire October 2007 through March 2008 decline.

The Nasdaq Composite Index – COMPQ soared almost 68 points on Thursday, and led the way higher closing at 2480.71, about 1% below the 50% retracement level. Remember that the Nasdaq was down over 20% in this decline. Bear market numbers.

How high can the averages go? While a new bull market would take the averages to new rally highs, that is still a bit too far in the future. Better to look at coming weeks instead.

If the SPX closes above 1416.22 in coming days, it will likely reach at least 1454 on this leg up. If the COMPQ can top 2511.02, look for the rally to push that index to at least 2595 before profit taking slows things down.

The stock market can go higher, but the further out we look, the murkier is the forecast. Suffice that for now, the direction remains up.