Last week I pointed to the high for March of 1332 as a key level of resistance for the S&P 500. On Wednesday the market stalled out just below that level at 1331.74. Amazing how the technical side of the market works. The market reacted favorably to employment data Friday of last week to break above the March high and concluded the week as 1332.
The S&P 500 climbed 5.4% for the first quarter. This was the best first quarter performance for the S&P since 1998. Stocks were resilient through the first quarter, hanging tough despite Japan’s earthquake and nuclear crises and a series of uprisings in North Africa and the Middle East.
The Russell 2000, S&P Mid-Cap and Dow all set new multi year highs last week. Unemployment reached a two-year low and payroll growth exceeded expectations. Payrolls grew by 230,000 in March. It is now reported that 68% of industries are adding jobs in 2011. Although the S&P 500 was able to set a new five week high above its March peak, it lagged the other indexes and was seven points shy of its multi-year high reached in February. There was a loss of momentum in the S&P 500 during the afternoon Friday. In order for the very short term trend in the market to remain strong we will need to see the S&P close above 1337.
Small and Mid-Cap indexes broke out to multi-year highs last week. Typically, when small caps outperform relative to large cap stocks it is a sign of increasing strength in the market. However, technology stocks have not led the way in this last advance. The NASDAQ 100, ex-technology, has shown very strong relative strength versus the S&P 500, reaching a new all time high. When you include technology the relative strength line of the NASDAQ 100 has failed to reach new highs relative to the S&P 500. That is something I will watch as we begin earnings season. We will need to see improved performance from tech stocks in order for the advance in the market to continue.
Earnings season begins next week. Alcoa always leads off the parade of earnings announcements. After the recent macro events, and with the market near its highs, forward guidance will be the focal point of company conference calls.
Last week’s high of 1337 and the year high of 1344 need to be taken out for the market to move higher. 1295 is the first level of support for the S&P 500 with 1275 being an even more important support area.
