• Round Number Implications

    by  • February 7, 2013 11:43 am • Broad Market Analysis, Charts to Watch, Quick Hits • 0 Comments

    On January 24, the S&P 500 Index (SPX) touched the round-number 1,500 level for the first time in a little more than five years.   Since then, 1,500 has been touched in 10 of the past 11 trading days.   The battle presently occurring at 1,500 is not a major surprise.   As I observed in our weekly Monday Morning Outlook e-zine on January 19, 2013:

    With the MID’s last close below 1,000 occurring on Dec. 5, the next round-number challenge is the 1,100 area. While one would not expect 1,100 to be as robust as 1,000 from a psychological perspective, consider that the SPX could soon be challenging 1,500 around the same time and thus present a challenge. And speaking of round numbers, the Russell 2000 Index (RUT – 892.80) gets set to do battle with 900. This comes after the small-cap index reached an all-time high last week after breaking out above the May 2011 and September 2012 high in the 870 area, which could now act as support. “

    Additionally, in this past weekend’s Monday Morning Outlook, we discussed the Dow Jones Industrial Average’s advance to the round 14,000 millennium mark, simultaneous with other major indices doing batter with round numbers.  We stated:

    “In addition to those indices mentioned last week, another major benchmark took on a huge, psychologically significant round number on the first trading day of February, as the Dow Jones Industrial Average (DJIA – 14,009.79) began its assault on 14,000. Including Friday’s trading, there are only three months in the DJIA’s history that 14,000 has been touched. ”

    The point of highlighting our observations the past few weeks is to suggest that the round numbers could be taking on additional significance at present, since multiple benchmarks are taking on psychological round-number resistance areas simultaneously.  Per the chart below, it is clear that the SPX’s 1,500 level has acted as a magnet the past couple of weeks,

    The recent momentum should keep pullbacks shallow during the next couple of months, as those that got long coming into the year aren’t feeling pressure to sell,many are hedged and there is still significant short interest looking to be covered.  But there is also a reluctance of  buyers to push major benchmarks above Dow 14,000, RUT 900, MID 1,100 and SPX 1,500.  A battle between bulls and bears might gain steam, and frustrate recent newcomers to the party.  When the newcomers give up or  throw in the towel after a few weeks,  it will be just in time for the next major leg upward.

     SPX 30-minute chart –  1,500 clear in play since January 24

    About

    Todd Salamone is a graduate of The Ohio State University. As Senior Vice President of Research, he oversees the strategies and analysis used in supporting Schaeffer’s various option recommendation services. He is the author of the company’s weekly e-newsletter, Monday Morning Outlook, and a contributor to Bernie Schaeffer’s SENTIMENT magazine. With more than 18 years of trading experience at his command, Todd manages numerous alert services for Schaeffer’s, and has introduced many sentiment-based indicators to its subscribers. Todd has presented option strategies to retail investors in cities throughout the U.S., and is a frequent commentator on financial markets via print, radio and television, including CNBC, The Wall Street Journal, and MarketWatch.

    http://www.schaeffersresearch.com/

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