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The S&P 500 had a relatively benign session on Friday for the third day in a row as we hover around the 1400 level. This doesn't surprise is, as this is just under the recent highs in May, and is also at the top of an uptrend channel.
The recent run in the S&P 500 will have been fueled by speculation that the Federal Reserve is about to begin monetary easing in September, and as such it won't take much to rattle the markets. We think that because we're the top of the channel, we could be vulnerable for some type of headline shocks that could cause a relatively strong pullback.
However, we also recognize the fact that a move above the 1420 level would signal a fresh leg higher as it would be a breakout of the channel. This could really accelerate the markets higher, at least until the Federal Reserve makes it announcement in September on what it plans to do. This announcement could be a catalyst for a move higher or lower, but we suspect that there's more risk of disappointment with this announcement than elation.
With this being said, we think the door to 1500 is probably open at this point, but we have to see whether or not we get a pullback first. Until we get to the September Fed meeting, we think that this market will continue to be a "buy on the pullbacks" type of market. Certainly the permanently bullish are out in droves at this moment buying this market. This can be seen as the United States is normally where risk assets get picked back up after losing in Asia and Europe. This at least has been the recent trend that we have seen.
If this market falls, we see the bottom of the channel been supportive obviously, but also see support at the 1380 level, and the 1360 level. Supportive candles that either one of those areas would be enough to get us buying the S&P 500 market overall, and until we get word otherwise, we have to assume that the liquidity rally will continue.