S&P analysis – 13/1

S&P-500 at 1472 is testing 5-year highs made in September last year. Breaking 1474.51 to the upside and making fresh highs would by itself be extremely bullish for the market. The breakup could even take place in the next days. So far, January follows the statistics implying it is an upmonth for risky assets.

Market volatility as measured by VIX is at historically low levels, meaning there is some complacency in the market. Last year was good for global stock markets and S&P-500 closed just below 2012 highs, after staging an impressive rally in the second half of the year. Optimism among investors grew basically after bond buying operations by the ECB and a “fiscal cliff” deal in the US.

However, individual stock volumes are very low, meaning there is not a big convinction and participation behind the upmove. This might also signal that retailers are not part of the game yet, so there is noone that institutions can “load” the stocks to. This speaks for a continuation of the upmove and its manipulation tactics.

My technical metrics suggest one has to follow the uptrend and use close stops. The market consolidates at the levels reached exactly after the fiscal deal announcement, so it is working out the overbought condition of the last weeks. Technically, the major threat for the S&P is the creation of a double top formation at current levels. We should keep a close eye to this scenario.

Only a convincing break above 1.475 would make us add to existing long positions, targeting 1500. A possible trigger for the market are corporate results for the last quarter of 2012.