Highly Likely S&P 500 Will Hit 1400

Last week's analysis wasn't too bold; I expected the markets to be tricky, and they certainly were. We reached the target I expected, albeit a little soon of 1360ish, which is quite an important number as we failed twice to break it. We retracted after touching the 100-day moving average, shown in the Daily S&P 500 Stock Chart. However in this analysis I'll be a bit bolder and give you my reasons as to why we are highly likely to hit 1405, even if it makes no sense in terms of macro-economic conditions.  One of the necessary components of heading higher is working off those overbought conditions in which we did last week.

In the 60 minute S&P 500 stock chart below, we see the market seems to like the Fibonacci Retracement lines of April's highs, as we tried twice to break 1360 which is the 61.8% retracement line, before getting rejected and finding support at the 38.2% retracement line. It is fascinating how well that works; you couldn't make this up.

Enlarged $SPX 60 Minute Stock Chart With Fibonacci Retracement Lines

 So we seem range-bound between the 61.8% and the 38.2% Fib lines. Once we are ready to break out of it, I really think the inverse head and shoulders pattern with some funky right shoulder symmetry will actually happen. It has a target of 1405ish. Keep in mind the head and shoulders patterns formed on most indexes these past months actually made their targets. It's not ridiculous to think this pattern will make it as the neckline provided support and kept the pattern from being invalidated. 

Enlarged $SPX Inverse Head & Shoulder Pattern Stock Chart

The chart below is the McCellan Oscillator which has just worked off being overbought. This means that we are promised higher highs (not like a typical momentum oscillator). When the McCellan Oscillator is overbought, it's basically saying we have enough money in the market to push prices higher. This is one reason why I think the inverse head and shoulder pattern discussed above will reach its target; we have enough money in the market to do it.

Enlarged McCellan Oscillator Stock Chart

Also, on the McCellan Stock stock chart on the bottom, I have compared the Russel Growth Stock Index to the S&P 500. As you can see from Feb to April, once the Oscillator builds a complex overbought structure, growth stocks start outperforming  the S&P 500. The S&P 500 does best when growth stocks outperform everyone else. Once this stops happening the S&P 500 gets a bit toppy. Growth stocks start to outperform for two reasons: growth stocks have higher beta and there is much more money to go around investing in these growth stocks. We have recently broken the downtrend line where the S&P 500 is outperforming growth stocks. So if you believe in this rally growth stocks might be the way to go.

To some people a target of 1405 seems a bit unattainable; I can understand that. I have a lot of indicators that I will post in the future that are quite bullish. Keep in mind it is an election year; the Fed supports the market. Even if the world's markets are crumbling, you can count on the Fed to prop ours up. If you're waiting for some kind of news to come hit the market, sending it lower, you have to realize the market has already absorbed a lot of bad news.  Greece elections are over and Spain will get a joke of a bailout. QE3 has been officially removed off the table; we already know unemployment numbers are just plain terrible. What other news can come to hit us lower? I think we are safe from any more bad news; we have a enough time to reach this 1405 target. This week the banks rallied on downgrades, which is counterintuitive behavior to most traders. Follow the news, but don't trade news; trade the charts.