In Search of 1,300

01/18/2012 6:30 am EST


Jim Jubak

Founder and Editor,

Why is the recent high in the S&P 500 making some investors uncomfortable? MoneyShow senior markets editor Jim Jubak explains.

It’s amazing, to those of us who are a little skeptical about technical analysis, how well it can seem to work at particular times.

You’ve had the S&P rallying in the first part of 2012, and the overhead resistance was about 1,292. And what do you know? That’s exactly where the S&P stopped—1,292 or so. The index is stuck there. It got that high and no higher.

Well, if you think about it, what people are doing right now is sitting there going, "OK, we’ve had a pretty decent beginning of the year rally. I’ve made some profit. Now do I want to go further?" There’s 1,300 sitting up there, that’d be nice to go through...but it looks like a pretty big barrier...

It happens that 1,292 is a level that people have latched on to as an expression of that discomfort, or uncertainty if you will. Really, if you said, "Well, I know where the economy is going, I know that it’s going to be good or bad, so we either bump right through 1,292 or go back down," but we really don’t know.

We have no idea what the first quarter is going to look like. First-quarter earnings estimates from analysts are notoriously inaccurate. They don’t predict anything about the quarter or the year going forward. So people who say the S&P is cheap, the S&P is expensive, they’re dealing with made up data that doesn’t show anything.

We’re dealing with analysts that have been cutting, analysts that have been raising, and that doesn’t show anything for the rest of the year. If you say look at the underlying economic trends...well, what are the underlying economic trends? We have a lot of sort of one- and two-quarter data points, but that’s about all.

Right now, what you’ve got is a market that says OK, gee, I’ve really made some money; I don’t know whether I want to protect it or go out further and try to make some more money.

And 1,292 to 1,300 is a really neat expression of that kind of uncertainty. That kind of fear. That sense of "Hey, I’d really like to know where we’re going before I either decide to jump on with more money or jump off and protect myself."

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