Time for cautious optimism

By Colin Twiggs
February 4th, 2013 12:30 a.m. ET (4:30 pm AET)

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The S&P 500 displays evidence of buying pressure on the daily chart, with brief retracement to test support at 1500 followed by a surge to a new 5-year high. Expect a test of the 2000/2007 highs at 1550/1565.

S&P 500

Troughs above the zero line on 13-week Twiggs Money Flow indicate longer-term buying pressure. Breakout is likely and would signal an advance to 1750*. Reversal below 1500, however, would warn of a widely predicted correction.

S&P 500

* Target calculation: 1550 + ( 1550 - 1350 ) = 1750

Declining 63-day Twiggs Momentum on the Nasdaq 100, however, warns of a reversal. Respect of resistance at 2800 would strengthen the warning, while retreat below 2500 would complete a head and shoulders reversal. Follow-through above 2900 is less likely, but would confirm a bull market signal from the Dow/S&P 500.

Nasdaq 100

These are times for cautious optimism. Central banks are flooding markets with freshly printed money, driving up stock prices, but this could create a bull trap if corporate earnings, capital investment and employment fail to respond.

A propensity to hope and joy is real riches:
One to fear and sorrow, real poverty.

~ David Hume, Scottish philosopher (1711 - 1776)