Caution Ahead For The S&P 500 Index But No Crash Ahead For Now

The S&P 500 index ( SPX ) gaped on the open with a positive lead from China on a bigger than expected trade surplus earlier in the day. Along with bullish tone set by JP Morgan( JPM ) with a beat on earnings on the pre-open.

The last week or two had shown low volumes as the blackout period grew for buybacks shutting out most companies from engaging in pushing their stock higher.

Despite this, the market moved higher albeit at lower volumes. However, the bright spot on Friday was a gap open with follow through buying on an above average volume day. Given that the buybacks black out is right at or close to the peak, this is a bullish sign that up until recently had been lacking in the current rally on the S&P 500.

Time For Caution Ahead

Although Friday’s move was welcomed by the bulls, caution is required this week as we move closer to the previous resistance level of 2,930 and prior all time high area. I'm expecting that this area will be challenging for the market to break clear of with conviction, given the strong rally leading up to this area. Given the bullish momentum from Friday we may even see the market move above the resistance level temporarily, (one or two trading days) before pulling back to this level or back below it for some much needed consolidation.

Since the U.S. is at the start of the earnings season and the bar is set low for EPS expectations, we could see significant volatility over the next 2 weeks including a surprise pullback in the market.

However, as previously stated, I'm not suggesting we are close to seeing a crash in the market. The main reason for this is the series of higher lows within the uptrend, along with the price action clearly above the 52 day moving average. Until this trend reverses with a fresh lower low, followed by a lower high on the daily chart, the bulls will continue to lead the market higher over time.

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