S&P Analysis for the Week: December 14th to 18th 2009

Guest Article: Written by Cory Mitchell for CFDsPros

The S&P 500 which is a good representation of the overall stock market, is still very much range bound, and is likely to remain so until the new year.  A very quiet Friday with little volume did little to inspire confidence to the contrary.

1100 is the nearest main support level for the current week, with a move below it indicating a test of 1098-1097 with the lower portion of the gap created Friday.  

Support beyond is 1095-1094 but movement to this level does indicate a high probability of retesting range lows.  Support near the lower range is 1086 and 1084.  A drop below 1080 (using a buffer below the lows) would punch us out of the range we were in.  

The target for that breakout is 1055 which is just above a hourly trending support line (going back to Sept).  There is important interim support which will provide us with other signals during the week.  

There is little support, in the event of a break downwards, until 1072.  This is the top from a gap that occurred back in early November.  The low of the gap is 1070.  If that gap is closed by new price movement it is a bearish sign and prices are expected to continue to chart lower into the 1068-1064 area.  

Support also comes in at 1060, therefore it will take fierce action to reach 1055 if in fact this market does break lower.  This is because the average weekly range for the S&P is just over 37 points, and the market closed on Friday right around 1106.

On the upside resistance is at 1109-1111.  A move above this area represents the likely scenario that range highs will be tested.  The resistance area near the highs is 1116-1120.  If this range is broken out of, targets are 1123, 1128 and 1131.

End of Guest Article 

India's WPI at 4.78% for November

The wholesale price index rose to 4.78% in November from a year earlier. The surge in the WPI was primairly due to higher food prices.  The sharp rise in the WPI also makes the case strong for a hike in the repo rate, reverse repo rate and CRR sooner then expected. 

It remains to be seen how fast the RBI acts on the rising inflation. It would surely look to stay ahead of the curve. In my opinion, one of the major issues going into 2010 would be inflation and that might also spook the stock markets at some point of time.  I would be writing later on the key events to watch out for 2010 and the market outlook for the next year.

Expected Impact on Equity Markets  

Reuters poll of 21 analyst had projected the inflation numbers to come at 4.14%. Thus, the sharp increase in inflation might not come as a bi surprise for the markets. Hence, the markets shold not fall very sharply as a result of this. However, the markets are in an overbought zone and a sharp correction can't be ruled out with inflation numbers just an excuse for the markets to correct in the very near term.