Rally Still Intact

May 9, 2008

The S&P 500 Index – SPX dropped on Wednesday, May 7, as oil prices reached new highs, a daily event of late. The Dow Jones Industrials - DJIA lost over 200 points while the SPX shed 25.69 points.

Is this the start of the great unraveling? Has the rally hit its last new high?

Last week we wrote that the first resistance level, marking the 50% retracement of the entire six month decline, was at SPX 1416. A close above this level would be bullish and forecast a run to at least SPX 1454.

Tuesday’s close was only a fraction above SPX 1416 and the next day the market sold off. When profit-taking occurs right at projected resistance levels, it is actually bullish. Look for higher highs over coming weeks, and maybe a bit more selling along the way to SPX 1454.