Stock Market Reaches Historic Turning Point

The Dow Jones Industrial Average (DIA) has gained 613 points, 4.4%, on a closing basis since February 25th, in a liquidity fueled rally that has yielded year to date gains of 9.8%. The S&P 500 (SPY) closed on Friday at 1551, just 14 points, 0.9%, below its highest close on October 9, 2007.

On My ETF Radar

In the chart of the S&P 500 (SPY) above, we can see how the index now approaches overbought levels with short term momentum turning positive. Recent action has been largely on low volume and in the face of significant fundamental headwinds. The S&P 500 (SPY) faces multi-year resistance at current levels and approaches those from overbought levels.

The S&P 500 (SPY) and entire U.S. stock market now stand at a significant turning point, a triple top stretching back to 2000. A sustained break higher sets the stage for yet higher prices ahead while a failure here would open the door to a potentially significant decline.

ETF News You Can Really Use

The stock market had a strong week with the major U.S. indexes closing higher.

The Dow Jones Industrial Average (DIA) notched yet another record close with a gain of 0.47% on Friday. The S&P 500 (SPY) gained 0.45%, the Nasdaq 100 (QQQ) climbed 0.17% and the Russell 2000 (IWM) jumped 0.85%.

For the week, the Dow Jones (DIA) S&P 500 (SPY) and Nasdaq (QQQ) all added more than 2%.

Friday’s unemployment report was positive with a decline in overall unemployment to 7.7% while the Federal Reserve Beige book report showed moderate economic growth. ISM services sector came in at 56, signifying expansion, while the February Non Farm Payrolls report showed the economy adding 236,000 jobs, a vast improvement over January’s 119,000 and soundly beating expectations.

However, all the news wasn’t positive as U.S. productivity fell in the fourth quarter and a deeper recession in Europe is now expected. Italy was downgraded to BBB+ by Fitch ratings agency, January factory orders declined and household debt rose 2.4% in Q4.

Legendary analysts Stanley Drukenmiller, Marc Faber and Nouriel Roubini all issued warnings about the future of economic growth and stock prices ahead.

Next week brings economic reports regarding retails sales, weekly jobless claims, consumer prices, Empire State Index, industrial production and consumer sentiment. However, the most important event next week is likely to be a Thursday lunch on Capitol Hill attended by President Obama and Congressional Republicans. The lunch is an important meeting as the two sides discuss alternative plans to cut government spending and avoid the upcoming mandatory sequestration cuts that started going into effect on March 1st and so far have been largely ignored by investors and the overall U.S. stock market.

Bottom line: The U.S. stock market now stands at a significant turning point, and the outcome will set the stage for the coming weeks and months. 1565-1580 is the line in the sand on the S&P 500 (SPY) for bulls and bears and surely an epic battle is about to take place at that level.

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