All Eyes on the S&P 500

02/28/2014 12:01 am EST


Jim Jubak

Founder and Editor,

MoneyShow's Senior Markets Editor Jim Jubak explains why many investors are focusing on a specific level of this key index and what it may mean to investors.

For the week ahead, well, it's all about 1850 on the S&P. That's the all-time closing high, and, really, the market keeps flirting with going through it, but it can't close above it. Interday, we've got 1857, 1856; we've got a day like February 25 when we had good news about new home sales in January above expectations, broke above that, and then in the last two hours or hour, selling starts to take it back down, and we get back below that 1850. Now, why is this high important? Well, if you think about it, what we're trying to do here is to see whether—people are trying to decide whether, at this level, they want to put more money in or take money out. That's what this is all about. So, you're trading at an all-time high, and let's say you've got $100 on the sidelines, and you're going, "Okay, do I want to put it in?" What you learned in 2013, which is not a lesson that necessarily extends beyond 2013, in your rearview mirror is that when you get through a new high, you want to put money in because it's going higher, so people are waiting to see. Okay, so they're kind of leery about it being this expensive, but they're saying, "Well, you know, if we see momentum above 1850, I'll take some more money and put it in." You've also got people saying, "You know, well, hey, 1850 is as high as it's ever been, so my inclination is a) not to put new money in and b) maybe take some money out.” Every time there's a dip, you get people a little afraid, so what you get when you go above 1850 to 1856, 1857, is you get selling because people say, "Oh! This is as high as it's going to go."

Now, this is a normal process for taking out a high and especially important when you're taking out an all-time historic high, but also, if you fail at this enough, you start to make people kind of nervous, make them leery, and they start to say, "Well, the market isn't really going any higher here. I can't count on momentum from here," and you sort of get enough nervousness so that the market, indeed, starts to, maybe, creep a little lower. That's really where we are right now. We don't know what we're doing in terms of the all-time high. We don't know whether we're going through it. We don't know whether we should sell here. Basically, the market is going back and forth, back and forth, back and forth. A couple weeks ago, I talked about how there really isn't very much in the way of big news that will move it, and I think that's what's going on here. There's kind of a news vacuum. We don't have a meeting of the Fed in the next week or so, we don't have big news out of China or anyplace else, our earnings season is pretty much wrapped up, so people are sitting there going, "Well, you know, should I put money in? Should I take money out?" and there's not much news to drive it, so all you've got right now is that technical formula, the high, people watching it to see whether it breaks through, and it's almost like a watched pot never boils. We're not going to move through 1850 until people start thinking that other things are more important than simply that number.

This is Jim Jubak for the video network.

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