Book profits on S&P 500

Price at time of writing – 1798.

Last week witnessed the S&P 500 complete its rise to my anticipated target level of 1791. 

With this target now fulfilled, I suggest profits should be booked immediately. Adventurous traders may also consider opening short positions on the S&P 500, even as the Dow stands 1.3% shy of its own major target.

The S&P has now completed a rise of 166.66% from its unique low in March 2009. In support of this resistance is a line representing a 66.66% rise from the secondary, but still important, low in October 2011. Taken together, they will create a very stiff headwind for any further advance on this major index. It may take a little time for a notable fall to take root, due to the fact that the Dow itself has some unfinished – albeit marginal – upside business. This means some overshoot is likely, but the risk in holding US equities has increased substantially. 

Tell-tale signs of an approaching high are everywhere to see. The level of initial public offerings (IPOs) has increased to near fever pitch recently, as companies rush to take advantage of retail money piling back into equities. Most major highs can be remembered by a high profile IPO which rang the bell. The UK government's sale of its stake in BP in October 1987 and the Lastminute.com listing in March 2001 (with a valuation of £571 million) are two classic cases in point.

Recommendation: sell. A downside target will be introduced next week. Stop-losses on short trades should be set to tolerate some overshoot, as Dow strength is likely to provide short-term support.

S&P 500 index chart

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