Rally Due For Consolidation After Rally

The S&P 500 is exerting a strong influence on the STI at this juncture. It has strong overhead resistance in the 785 to 805 region. Based on the recent close, it should rally to test that level soon. We need to observe how the S&P reacts to those levels before assessing whether there is still more upside to the current move. When the S&P 500 is testing that level, the STI should begin to slow down after one more upward push as well.


S&P 500, Daily, 18 March 2009



On 17Mar09, the S&P 500 closed near the high of the day at 778. Contrast this with the day before when price rallied but closed below its opening near the day's low. This formed a shooting star candle that tells us a lot of selling came into the market. The combination of these 2 days tells us that there has been a good amount of selling, but it has been absorbed by new buying. This usually points to higher prices.

However, there are multiple resistance levels at 781 (projected monthly resistance), 785 (projected weekly resistance), 795 (61.8% retracement), 800 (round number) and 805 (approximate 50 day moving average and previous lows). How the S&P 500 reacts to these levels will largely determine whether the up move still has steam. Nonetheless, we should at least see prices begin to slow down and consolidate around this region. The 795 to 800 mark looks like an attractive target.


S&P 500 , Weekly, 18 March 2009



The S&P 500 has rallied sharply over the past week. It has the trappings of a technically driven move, with multiple oversold oscillators unfurling and taking prices higher. Although the move is displaying a good amount of upside momentum on the daily charts, we do not believe that this marks the end of the current bear market.

From the weekly chart above, we can see that the current move is not particularly significant with regard to the overall trend of the S&P 500. In other words, while the daily charts are rallying it has barely begun to register in the weekly charts. Because of this, we classify the move as a bear market rally for now.


STI, Daily, 18 March 2009



The STI has rallied in tandem with the S&P 500. There is strong overhead resistance at the 1635 level, which is a confluence of previous highs as well as projected monthly resistance.

The main factor affecting the STI now is the S&P 500. We believe that as the S&P 500 encounters resistance around the 780 to 805 level, the STI rally should begin to slow down somewhat as well.


CRB Index, Daily, 18 March 2009



As mentioned in previous reports, the CRB has recently 'decoupled' from the equity market as the leading indicator. We believe it has fallen back into an auxiliary role with regard to the equity markets.

The CRB is beginning to rise gradually along side with the equity markets. This might have added to the sharpness of the recent S&P 500 rally and equities as a whole.

However, despite a gradual rise in the CRB, stochastics has already shifted into overbought territory. This tells us that the momentum for the CRB to rise is somewhat weak with a small rise in price 'maxing out' the indicator. A healthy market should see stochastics rise almost linearly with an increase in price.

We continue to maintain the view that a rising CRB will help boost a rising equity market and cushion a declining one. The reverse holds true for a falling CRB.


Conclusion
At this point the S&P 500 exerts a very strong influence on the STI. Watch how the S&P 500 reacts to the 785 to 805 region.

On a day to day basis, the strength and direction of the close for the S&P 500 is a reasonably accurate gauge to determine the bias for the STI the following day.

The CRB is currently rising along side with the equity markets. However, it is in overbought territory and seems to lack push to the upside. Should the CRB decline it should check the current rally in the equity markets.

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