Andy’s Market Report 3/11/12

The bulls were once again successful in pushing the market higher this past week. It marked the ninth advance in ten weeks. The S&P 500 is already 9.0% higher year-to-date and the Nasdaq 100 is up a staggering 14.7%. The bulls have been in control since December 19th, in what has been one of the most persistent rallies in market history.

This past week did have some significance for the bears. Trading on Tuesday was relatively dramatic in that the S&P 500 fell 1.5% to suffer its worst one-day drop in almost three months. The action came on the heels of weak action abroad, where markets remained concerned about the implications of slower growth in China and news that Eurozone GDP declined by 0.3% in the fourth quarter, unrevised from its preliminary reading. The disconcerting macro picture came as the stock market began to show fatigue during its run to a new multi-year high in the preceding week.

Widespread weakness and concern that stocks were possibly setting up for a correction caused the VIX to spike more than 15%, putting it back near its monthly high.

However, the pullback was short-lived as the market bounced back over the next three trading days. It was the best string of gains in over three months. So, for now, the bulls reign supreme.

Friday also marked the three-year anniversary of the S&P 500’s plunge to a 12-year low, a move that was followed by a sharp rally. The S&P 500 still is up 102 percent from that low.

“Everyone’s looking for a correction here, which just tells me we’re probably going to have another little run up before we get that correction,” said Scott Billeaudeau, portfolio manager at Fifth Third Asset Management in Minneapolis.

Technically speaking, the market is hovering near key resistance levels, which could influence next week’s direction. A push above 1,376 by the S&P 500 could suggest further gains ahead, while holding at or below that level could indicate a continuation of Tuesday’s selling.

Moreover, we have a short-term overbought in all of the major indices, although that indicator hasn’t really worked well so far this year. Furthermore, almost every indicator I follow has once again pushed into a short-term overbought state.

If the aforementioned bearish technical were not enough, we are entering into one of the weakest stretches on a seasonal basis for the market.

My thought is that we will see a choppy to lower market over the coming weeks. Trade accordingly and remember, trade small and trade often. Always, use position-sizing as your most important risk- management tool.