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Jan. 11, 2012, 12:01 a.m. EST
Jeff White is a full-time trader in Texas. Blending a technical approach with a thorough understanding of market psychology, money management, and strict discipline, Jeff has enjoyed success in a variety of market conditions since the late 1990's. On a daily basis, White shares his insights at TheStockBandit.com, an educational site directed towards active traders. Jeff's willingness to adapt to the trading environment has allowed him flexibility and versatility in an ever-changing market. Follow Jeff on Twitter @TheStockBandit.
By Jeff White
The S&P 500 has been working its way higher since its failed breakdown early last October. Since then, it has ramped higher and then consolidated, which is a very healthy way to digest the initial advance.
In recent weeks, we've seen a pair of higher lows established on the daily chart (Nov. 25 and Dec. 19), and both dips were. Although the past three weeks have provided this index with a 7% lift, the buyers may not be finished yet.
Of great importance here are two developments which now bode quite well for the S&P /quotes/zigman/3870025 SPX +0.89% .
The first is the newfound participation of major financials in the current rally, which is an integral sector to this index and one which has not been pulling its weight. We've seen heavyweights like Goldman Sachs /quotes/zigman/188479/quotes/nls/gs GS +3.84% , Morgan Stanley /quotes/zigman/182639/quotes/nls/ms MS +4.26% , Wells Fargo /quotes/zigman/239557/quotes/nls/wfc WFC +0.38% , Citigroup /quotes/zigman/5065548/quotes/nls/c C +3.16% and of course Bank of America /quotes/zigman/190927/quotes/nls/bac BAC +5.74% start to show important changes of character in just the past couple of weeks, shifting from being stuck in the mud to on the move higher.
While the S&P contains 500 stocks, traders have been well aware of the lack of participation in these key financials which are finally starting to perk up. Should we see dips get bought in these names going forward, it could bolster further confidence in the overall market.
The second development is the test we're currently seeing of the all-important 1294 level. That magic level was tested numerous times during 2011, so it belongs on everyone's radar here. We saw it serve as support last Feb. 24, then again on April 18. It then became resistance during much of June, before being reclaimed and then tested with the mid-July pullback. Once it was broken, it was not seen again until we saw the October rally stop less than 2 points from 1294. Clearly, it's a huge level, and we're hitting it again here.
The S&P 500 has rallied right to 1294, and this is an area which may be respected in the short term as prior bouts with it have each proven meaningful. Should we see 1294 get reclaimed, the next logical level to look for would be a test of the 1345-1350 area where this index twice peaked last year (Feb and late July).
Markets have a way of returning to important levels, so it's no surprise the S&P 500 continues to challenge 1294 from both sides. The coming days could prove to be pivotal for this index as we see the market either embrace or reject this zone.
Here's a look at the S&P 500 chart as it contends with the critical 1294 level, as well as the financials which are helping the cause with technical improvements of their own:
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