As far as the near-term
rally continuing, this is a big week. Expectations that the Germany high
court rules on constitutionality (Sept 12th) and ultimate backing of the $500B
euro ESM (which is where all this potential bond buying will happen) alongside
the FOMC (Sept 13th) on a much anticipated QE bazooka should have a big impact
on whether this rally can continue. In terms of key levels, there is not much in
terms of real important resistance at this point given the new highs.
While the market is
overbought and internals are not strong while bearish divergences build, the
market should not be troubled much unless we close back below about 1395 (the
lows of the past month). The trendline off the June and July lows is tracking up
into the 1400 area this week. So we face another week of event risk and there
are an awful lot of expectations priced in to the market. We should see a
correction develop into mid-October, but no major setbacks until we see the
results of the election and get some idea of what the fiscal cliff will look
like in 2013.