Everyone has their eyes and ears on Friday’s Jackson Hole speech by Fed Chairman Ben Bernanke. Most markets are starting to quiet down in volatility and trading volume in preparation for whatever Bernanke will or won’t say about the prospects for increased stimulus. Both the bond and stock markets have exhibited rallies over the past week, thus leading us to believe the markets expect Bernanke to be more quantitative easing (QE) positive than neutral.
We focus on the S&P 500 today, as the SEP 12 futures have been holding nicely above a key psychological level of 1400. With all of the chaos and sovereign drama that has occurred over the past 12 months, the S&P 500 futures market has exhibited tremendous resiliency. Housing numbers recently have shown promise, and we think the market is starting to show signs of a continued rally. A lot is dependent on what Bernanke says this Friday. At the same time, this market may be reflecting an underlying belief that QE or no QE, the economy is starting to show positive signs.
We include a weekly S&P 500 futures chart to show the reasoning behind our upside target of 1530. If the S&P 500 continues to stay above key support at the 1390, we look for a continued rally to our technical target of 1530. The S&P 500 had a 270 point rally from December 2011 to March 2012. From the most recent swing low at 1260 in June 2012, a 270 point rally would take this market to approximately 1530.
Again, our major level of support and decision we are watching closely is 1390. If this market can hold above 1390, we believe more and more participants will turn bullish.