Thursday’s market action was the direct result of a short covering rally: low volume and almost zero news to act as a catalyst either way. The SPX reached above 1400 and is now comfortably above the more significant level of 1390. Above that level, the bulls are in control.
Advance GDP is released later this morning and the consensus is 2.6%. This growth rate is sluggish and a product of the new normal economy; but keep in mind it’s all relative. This morning’s quantitative Overbought / Oversold levels come in at 1406 / 1379.
I expect a minor sell off over the coming days, but I think the risk is to the upside. Any downside pressure will stall at 1390 and market participants will re-evaluate who is in control. It is likely that bears will completely relent at that point, paving way for the SPX to reach new yearly highs by mid-May. Remain disciplined, but look to add to long exposure. We’ve crossed into Overbought territory the past two days and wouldn’t be surprised if it happened again today. The Oversold levels will quickly adapt to higher SPX levels, and I’ll be waiting for a better opportunity.