The S&P 500 does suggest that it is ready to continue going higher, and it is likely that we could see continued upward pressure due to the fact that the market is going to continue seeing buyers on dips. At this point in time, it is likely that we are going to go looking towards 5000 now that the Federal Reserve is out of the way. After all, even though they are tapering, the reality is that the speed of tapering is very slow, and it is likely to have little effect on the markets in general. After all, the S&P 500 continues to be a major beneficiary of liquidity measures, which are going to continue going forward.
Furthermore, the market does not necessarily even seem convinced that the Federal Reserve is going to be willing to do everything it takes to fight inflation, because they are also concerned about the market itself and employment. In other words, the Federal Reserve is extraordinarily boxed in at the moment, and traders are probably banking on the fact that liquidity is here for much longer than anticipated.
Regardless, the 4500 level should offer plenty of support, as it is a large, round, psychologically significant figure and an area where we had recently seen a lot of pressure. In other words, “market memory” comes into the picture in this area. I like the idea of buying pullbacks as they offer value, and even if we do break down below the 4500 level, the 50-day EMA sits at the 4465 handle and is rallying, showing that we have plenty of momentum going forward. This is a market that has never really shown any serious concern about going higher over the longer term, so with that in mind I think this is a market that will eventually reach as high as 5000, maybe even by the end of the year at this rate. Remember, the fourth quarter typically has a lot of momentum chasing going forward, as the money managers out there are trying to catch up to their benchmarks in order to show clients at the end of the year that they are in fact earning that money. It is the so-called “Santa Claus rally”, and a well-known phenomenon.
