In focus: Will it be ‘sell on the news?’

By Lawrence G. McMillan

The market continues to move higher, albeit at a very slow pace. The bears have been frustrated at mostly every turn, as one negative news item after another has been tossed aside in favor of the “risk-on” strategies dictated by the expected monetary easings from both Europe and the U.S.

The $SPX broke out to a new post-2008 high last week and has been able to hold on to those levels. That breakout came after a very shallow correction from the previous highs in mid-August. In fact, in a larger sense, the entire month of August has the appearance (on the chart) of a sideways correction — a base for the breakout that has now occurred, and potentially much higher prices from here.

There is support at 1,420, which is both the March and August highs. Below that, there is support at 1,395-1,400, where the market bottomed several times in August. Also, that is near the lower band of the bullish channel that has encompassed SPX since early June (see chart below). It is that 1,395-1,400 level that I consider very important. As long as that holds, the bulls will still be able to have their way. But if that level should be broken, the chart will turn negative...

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