SPX - At The Crossroads

Interesting action today, as we gapped open and remained in a positive territory most of the day, giving up some gains after Chrysler's Chapter 11 decision. We have been faced with tremendous amount of negativity, worse than expected GDP, BAC and C requiring more funding, and swine flu pandemic. But we keep marching higher. On a positive note, we have more than 60% of companies already reported and thus far the positive earnings surprises seem to prevail.

So today we find ourselves at the crossroads, with SPX still staying within a trending channel, a stone throw away from the major resistance - @875. The support remains around 860. Normally, such strong momentum deserves respect, and it breaks above 875 and holds it for a day or two, I think we can expect a move into 920 area. If we get some buying panic kicking in, (which I think would be likely) we could reach 950-1000 by the end of the May.

But, there is a clear divergence in stochastic, that is indicative of the momentum running out of steam. I think the odds now favor consolidation. A break below 860, would likely imply a move to 825 area, where I think we may hold, barring some new shocks.

So, tread carefully, while we are in the channel. Take some profits and go out and play a round of golf. Buy the breakout above 875, or bounce off of 860 level. Sell/short breakdown below 860.

Here is a chart so you can see what I am talking about: