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Another Resistance Level Broken

Resistance Levels

In my blog post titled Mark\'s Rule of Three (click this link) I mentioned that the next overhead resistance was at 1293 on the S&P 500 Index, which represented the October 2011 high. You can see that something got a hold of the investment community and we are on day three of a move above that level.

In that post, I mentioned that we’d be adding to our pure beta SPY position (the ETF that represents the S&P 500 Index) if we successfully broke above 1293. My plan is to do just that once the overbought situations as identified by the RSI indicator and the Stochastics indicator have cleared. You can see the two green circles on the graph above.

In previous posts, I’ve written that these overbought situations clear either through prices going down or through time passing, so we will wait for the one or the other to occur before we make a move.

What’s next? The resistance level of 1370 on the index which represents last year’s high posted in May 2011. At this point, we are about 80% of the way there from last year’s lows around 1070, so there is no reason to get too aggressive here with the cash we have on hand – we will invest what we see based upon the price action and the indicators of investor sentiment we follow. The stop losses may protect us on the downside, but we will likely raise cash and book profits if we move up toward that level.

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