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Takeaway: We expect the SPX to re-test its all-time closing price high of 1565 (OCT ’07) over the intermediate term.

Keith and I recently wrapped up a two-day road trip full of meetings with a multitude of sharp clients from all across the asset allocation spectrum. This is the first time in a very long time (roughly 12-13 months ago) where the Thunder Bay Bear and his blind-side protector universally left the room more bullish than the folks we had the pleasure of meeting with.

While an admittedly small sample size, we take solace in the fact that PMs, analysts and traders representing long-only equity funds, long/short funds, global asset allocators, bond funds and credit strategies all had a healthy degree of skepticism regarding how fast and how far the domestic equity market has climbed from the NOV cycle-trough – coincidentally when #GrowthStabilizing started to percolate though the global economic data.

While not a tangible bull thesis from these levels or any other prices, we do think the fact that money managers are A) not fully convinced this market is headed higher and B) not fully convinced that funds are poised to flow sustainably out of fixed income and gold/inflation-hedge strategies into equity funds is a sign that there are some out there who may be forced to chase this market higher in pursuit of relative performance.

The machines certainly will – especially given that the market remains in a Bullish Formation on our quantitative factoring: 

  • Overbought = 1506
  • TRADE Support = 1481
  • TREND Support = 1428 

Of course, that doesn’t mean the market will continue to make new highs a straight line. The call does remain, however, to trade this market with a bullish bias, booking gains on strength and buying the dip(s) on weakness. If the fundamental research signals (i.e. #GrowthStabilizing, #HousingsHammer and #BernankesExit) change, you’ll hear us get very loud about it.

For now, don’t be surprised if the flows, the machines and the institutional investment community all co-jam this thing higher. A re-test of the prior all-time closing highs is certainly not out of the question over the intermediate term.

Darius Dale

Senior Analyst

1565?: SP500 Levels, Refreshed - SPX