Date: February 23, 2016

Bulls Retreat for More Ammo

After 6 essentially straight up days for stocks off the February lows, it’s time for a breather or pause to refresh. In one fell swoop, the major indices have gone from the precipice of collapse to strong initiation of a rally. Sentiment saw despondency. Mutual fund flows were very defensive, Price action had panic. The breadth and breadth volume thrust off the bottom has been powerful and dramatic and portends higher prices into spring… with one familiar caveat.

As I wrote about in Street$marts, there was a single line in the sand which has now been doubled. As you can see below, if prices close above their February peak, the line in the sand will be breached and the bulls will be in control. Should prices decline below the February lows, the bears will be firmly in control.

Looking at the S&P 500 below, Monday’s strong rally just got up to the line in the sand, but couldn’t quite close above it yet. On the first attempt, it’s more than normal to see prices back off for a few days to a week before assaulting and overcoming those levels again. The Dow Industrials have already closed above its line in the sand along with the S&P 400. However, the Russell 2000 and NASDAQ 100 still have some upside work left.

line in sand1

Assuming the S&P 500 does finally close above 1947, that will also confirm the double bottom I wrote about in Street$marts. The find the upside price target, you simply double the size of the rally from the February low to 1947, which gets you to roughly the 2080 area on the S&P 500 by the end of Q2. On the Dow, that’s about 17,500.


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Paul Schatz, President, Heritage Capital