The major stock market averages have been climbing back toward their 52-week highs. For the S&P 500, for instance, we’re only about 1 percent below the January highs around the 1050 area. Depending on how the S&P (and Dow Industrials) act in the near term it should set the tone of the market for the next several months.

For instance, we’re coming up on the S&P’s 200-week exponential moving average. If the powerful rally we’ve experienced in the last year is nothing more than bull trap in the context of an on-going secular bear market, and there’s still a strong argument to be made that it is, then that level is a logical place for the market to stall again.

Failure to close above the 1050 market for several days running will likely shake investors’ confidence and lead to at least a modest pullback in share prices, probably resulting in another retreat back to around 1050.

If, on the other hand, the S&P does hold above 1050 for several days, the technical breakout will bring in more buyers who are likely to drive share prices even higher. Looking at the index’s long-term chart, the next leg up would probably carry us to around 1220, last seen back in September 2008. That area represents formidable overhead resistance that stretches all the way back to 1999.Read more...