We have a (temporary) solution to the debt ceiling, and the government is open again, too. While some people celebrated by watching the re-opened Panda Cam, Wall Street’s hurrah was a 70-basis-point rally for the S&P 500 — and for traders’ purposes, the SPDR S&P 500 ETF (SPY) — that sent the index to fresh all-time closing highs.
What’s interesting to note here is that both the anticipation of a solution as well as the actual solution were both applauded by the market. The SPY ETF rallied 3.9% from Thursday, Oct. 10, through Wednesday of this week, then tacked on even more yesterday.
So, good news is good news … but how will the market take bad news?
Given the underlying strength in the sectors of the S&P 500 and the levels it has reached from a technical perspective, the SPY should have more upside from here. The question is how much and how long.
To get a better estimate, let’s look at a chart of the SPY ETF that looks back to November 2012, which is where this latest rally in the S&P 500 began.
It’s no secret that every single dip in the S&P 500 in 2013 has been bought with a vengeance, and last week’s low around $164.50 on the SPY was no different. As we came into last week, the media finally began to circle the $167 area on the SPY (or the 1660 area on the S&P 500) as important technical support, as that was where the November 2012 uptrend sat.
While I had this level circled for a couple of weeks on my charts, as soon as I saw that the media had gotten its grip around the same level, I immediately discounted its importance.
Sure enough, the SPY ETF dipped marginally below $167 to $164.50 just to stop out the longs and get the bears all juiced up … before flipping right back to bull mode the next day on Oct. 10.
Such is the tale of bull markets. Dips get bought just when bears see a glimpse of hope, and this continues to be the case for the S&P 500.
In terms of upside targets, the S&P 500 looks to have near-term upside toward the 1740-1750 area and the SPY up toward the $174.80-$177.80 area. Traders with longer time frames than a couple of weeks could simply operate with a trailing stop on the SPY, as well as a worst-case stop at $168.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.