What 1200 Means for the S&P

By Bryan McCormick

The S&P 500 continues to move in a tight range ahead of the start of earnings season next week.

As I have mentioned a few times in the last couple of months, market strategists have been targeting the 1200 area as one that the index could easily reach. At the lows of February, that may have seemed a lot less likely. Today, we are just a handful of points away.

Why is the 1200 area so important? Fundamental analysts are looking at market multiples and the expected earnings flow from the SPX to get their target. On a technical basis, the 1200 level happens to have been very important in the recent past.

On the first leg down in July 2008, the 1200 area was initial support. We can see this on the right side of the chart below. (I have drawn in the 1200 line in red to make it easier to see.) From that bounce, the index rallied nearly 10 percent before rolling over.

The next time down, the index fell through that level, made a weaker bounce, and ultimately gave up at that area in late September 2008. From that point, it was a near vertical descent in a matter of a couple of weeks to the initial index lows around the 850 area.

Nearly two years since the initial test at 1200 finds us back near 1200, this time as resistance. The key for earnings season is whether there will be sufficient surprising positive news to push the index through that level.

If that happens, 1200 may quickly become support, leaving behind the corrective action of the index for some time to come. If not, 1200 may prove to be resistance for some time to come as well, awaiting future positive catalysts.

Support for the recent leg of the uptrend is at the 10-day moving average, last at 1179.57, which I have shown in green. A breakdown below that moving average would snap the short-term uptrend.

But the SPX would need to fall below the lows of February, at the 1050 area, to break the uptrend off the March 2009 lows.

(Chart data provided by Thomson Reuters)