Time for a correction

By Lawrence G. McMillan

The stock market, as measured by the S&P 500 Index, has had an impressive year so far. A strong month of January wound up with the typical seasonal buy programs which have spilled over into February (as they often do).

But the overbought conditions have continued to grow, without being properly alleviated. Thus, the odds of a short-term correction are high, especially as January disappears in the rear view mirror.

SPX traded up to 1330 today, equaling the highs of last week. Both times, that level presented resistance. Furthermore, at that level, SPX is more than three standard deviations above its 20-day moving average – a normally unsustainable level. There is near-term support at 1290-1300, and at 1270 below that. The intermediate-term trend line, connecting the October and November lows, is the defining trend for this bullish move. That trend line is currently at 1260 and rising. Any correction would likely not breach that level, unless the intermediate-term technical picture worsens considerably.

To read the full article, subscribe to The Market Watch Options Trader.