The 1150 Ceiling

Have you noticed the S&P; 500’s range? Many have not. A lot of analysts I read, and media I watch, keep referring to the stock market rally as being one year old. Is it really, though?

Consider that the first 49% of the bounce happened by last July. The S&P; 500 rebounded from its 667 low in March 2009 to its 997 high in July 2009. From there, it gained only 15% to yesterday’s close at 1150, which happens to be the high of the rally, and it was touched back in January, too.

Most of the last five months have been spent flipping over and under the narrow band between 1095 and 1100. From last July’s high to the pivot band, the market gained only 10%. That’s not bad, but it’s hardly the runaway, one-year-old rally everybody’s talking about. When we include the whole range since October, the market has just been fluctuating between +5% and +15% from its high last July. Big deal.

I wrote to subscribers two weeks ago:

Lest you think the rangebound market is new, note that we’re sitting right where we sat at the end of November. The S&P; 500 has gone nowhere since Thanksgiving. It closed Nov. 24 at 1106. Using the late-October/early-November closing supports at around 1040 and the mid-January peak at 1150, we could call the medium-term range 1150-1040.

Then, Gluskin Sheff’s David Rosenberg agreed with that range thesis in his morning note sent to clients on March 3:

The S&P; 500 has basically been hovering around the 1100 threshold since October 15, getting as low as 1042 and as high as 1150 in what can only be described as a tight 10% band. (As an aside, the 13-week rate of change for the S&P; 500 has swung to negative territory.) It has split the time above and below the line almost perfectly evenly as well (52% above, 48% below). We can understand the emotions involved in such a prolonged sideways band — a down move to 1080 triggers calls for a correction, while moves up back to 1120 prompt calls for a new high coming around the corner.

With that background, notice the market’s sense of humor so far this week. It’s toying with everybody. The bulls are dying to see it break decisively through the 1150 ceiling, the bears are dying to see it turn decisively down from the 1150 ceiling. Instead, it has marched gently, ever so gently, to precisely the 1150 ceiling as we head into Friday. Look at the daily highs so far this week:

1141 Monday
1145 Tuesday
1148 Wednesday
1150 Thursday

What’s next? Come on, you stock market genius, are we breaking out or turning down? No matter which side you take, you’ll find plenty of friends. That’s why we’re in a range…for now.

Enjoy the show today.

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