SPX rallied over 100 points from mid-October to late-November. Many, if not most, expected the beginning of a cyclical bear market last month. Consequently, heavy short-positions were taken, in October and November. However, it turned out, SPX rallied to 4 1/2 year highs, while a "short-squeeze" took place over the past week, extending the cyclical bull market. The rally may continue into the end of the year, although the market may consolidate short-term. Typically, steep rallies (without consolidations) lead to volatile consolidations or steep pullbacks. So, I expect a volatile week next week, and over the first week or two of December.

The first chart is an SPX daily chart that shows both RSI and ULT (an oscillator) are both over 70, which is rare for an index. Consequently, a pullback may take place within the next week. The two previous pullbacks (see circle) were both to the 10 day MAs. Currently, the 10 day MA is just over 1,243 and rising about five points a day. Other major support levels are 1,253 (multi-year Fibonacci level), 1,246 (previous four-year high), 1,235 (congestion area), and 1,227 (20-day MA, which is also rising sharply).

The second chart is an SPX monthly chart. SPX has generally traded between the middle and upper monthly Bollinger Bands over the recent bull market. On Wednesday, SPX rose above 1,270, which was slightly above the upper Bollinger Band at 1,268, and then pulled-back. So, 1,270 may be short-term resistance. The monthly Bollinger Band may rise above 1,280 next month. Consequently, it's possible, SPX will rise to about 1,300 in late December or early January.

There are several factors driving the market. Negative sentiment tends to be a contrarian indicator and created the recent short-squeeze. Investment funds want a strong quarter to finish the year with the highest possible returns. Consequently, the best performing stocks this year may continue to rise into the end of the year for "window dressing." Oil prices have stabilized between $56 and $59 a barrel after rising above $70, and a warmer than average winter may lower oil prices further. Expectation of a strong holiday shopping season, viewing economic data as "half full" rather than "half empty," and a belief the Fed tightening cycle will be over early next year will contribute to keep the market high.

Charts available at PeakTrader.com Forum Index Market Overview section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

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