Flirting With New High Breakout

Low volume trading environment keeps the buyers in control despite the mixed economic data and lack of clarity looking forward. Some are blaming the summer blahs and promise more activity in September when everyone is back to work on Wall Street, but I am not sure there are that many missing that would reslut in a 20-30% decrease in volume. Thus, as we approach the end of summer and the beginning of fall let’s look at some ideas to watch this week and going forward.

First we have to address the obvious resistance at 1419 on the S&P 500 index. The test of the high on Friday was the first attempt to move above the high from March as well as test the four year high from May of 2008. Psychological? Maybe, but this is a key level for the broad market indexes to clear if the uptrend is to continue. The Dow Jones Industrial Average is in a similar position to break higher. Watch the volume and participation on the upside. The best case scenario would be a test of the move and then a move higher. Either way moving above this level would be a technical victory for the broad markets.

That said, I am looking for a pullback or test of the current move higher. Looking at a chart of the S&P 500 index we find two weeks of moving higher without any downside to speak of. At the least a test of the 1390 mark would be in order. This would be a good entry point if you want to play any moves higher. Thus, I see opportunity in a pullback should one result short term.

Merkel (EWG) is back and meetings with Greece (GREK) and France (EWQ) are scheduled for this week to determine what happens next? Regardless of the outcome the meeting will bring with it renewed concerns for Europe (IEV) and the euro (FXE). The problems in Europe are well documented and it is important to remember they have not been resolved by Draghi’s comments of save the euro. The ECB has done nothing since those famous words, but there are plenty of rumors brewing relative to the next actions to be taken by the ECB. The bond purchases are the big news and if they can accomplish that feat in the coming month it would go a long way to calming the fear relative to the euro’s future.

Metals versus Miners (XME). This promises to be a good fight in the weeks to come. The discrepancy between the two has been well documented, and over the last fifteen months the gap has widened. The gold miners (GDX) have established a bottom of sorts and are attempting to establish a short term uptrend. A sustained move above $45.40 would be a positive going forward. Copper has been equally divergent in price of the metal (JJC) and the mining stocks (COPX). A break above $11.80 from the consolidation near the lows for COPX would be worth watching near term, however the volume on the fund is extremely low. As an alternative you can scan the stocks and follow the leaders of the fund. This is one sector to watch looking forward.

The S&P 600 Small Cap index (IJR) broke from consolidation and finally showed some leadership for the broad markets. Look for a continuation of the move higher if the market is to maintain the current trend. IJR moved above $74.75 and a test of the move would be a good place to establish or add to the move higher.

Stay on defense! This is still a dangerous market environment and not one to be taken lightly. The move higher has been a combination of hope and determination by the buyers. The lack of sellers and VIX at new lows has combined to push stocks higher. This is not your typical rally and it isn’t likely to end normal either. Keep your stops in place and your focus on principle protection.