A Preview of This Week's Market Behavior

As you can see on the chart, we're about to test resistance in the S&P at 875.  Intuitively, this seems like a good spot for the market to stop and take a rest, and maybe give us a pullback.  A test seems imminent!

The behavioral side of things is showing some bullishness, as demonstrated by the VIX in my previous post.  Investors appear to be buying on dips and are less likely to "panic sell" than they have been over the past several months.  As a result, I can see two possibilities for the short term:

1.) The market will move through resistance on continued strong buying.  Nothing has stopped the rally so far, so it wouldn't be surprising if this level of resistance fell quickly.

2.) The market will pullback and trade sideways.  We could see it drop back to about 790, where we saw resistance earlier and where the 50-day moving average is sitting.  Investors should be confident enough not to let the S&P slip below that level.  If we do pullback to 790, we should see investors who have been dying to jump into the market finally do it.

Between these two possibilities, I would expect that the second is more likely.  This has been a huge rally and I think that a mental breather may be in store for investors.

Chart courtesy of StockCharts.com