Recent price action in the March S&P 500 shows a market that is priced for perfection. This week’s drive into new contract high of 1505.90 satisfied an upside swing objective drawn from the November 16th low of 1336.50, which came in at 1505.10. Additionally, the 8.9% rally from the December low to this week’s contract high (1505.90) manufactured the most technically overbought condition since the February 2012 peak. Wednesday’s bearish reversal from a new contract high, followed by additional selling pressure on Thursday points to a market ripe for a set back.
Bottom line, the market has priced in a significant amount of positive data and the negative GDP rating released on January 30th and the 38,000 uptick in the initial jobless claims to 368,000 could provide some headwinds in the short term. Additionally, disappointing earnings from Dow Chemical that highlighted weak demand from China and Europe, as well as profit guidance from United Parcel Service (UPS) that fell short of street estimates due to an “uneven global economy” put added pressure on the S&P 500. This goes a step further in clouding the recovering growth theme and puts the S&P 500 on track for a near term correction.