Commentary > Bid and Ask
Bulls out of range
With the S&P's breakout, a big rally may be in the offing.
September 3, 2003: 8:34 AM EDT
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - September has a reputation as a bull killer, but this year it looks like it could be loaded for bear.

Stocks pushed higher Tuesday, and though the rally on the first trading day of the month wasn't particularly spectacular in point terms, it did push the S&P 500 index out of the trading range that it has been locked in all summer to its highest level in over a year.

For technical analysts, that was a big deal, suggesting that the market could be in for a huge rally through the end of the year.

The magic level on the S&P was 1,011, a mark the index closed at on June 17 but hadn't been able to finish above since. There were a number of near misses, however, suggesting that investors had determined that 1,011 was a fine place to sell.

Short-term traders soon jumped on board as well, buying at the bottom of the S&P's range (970 or so) and selling short at the top. And so the range became self-fulfilling, and the index traded in its narrowest channel in recent memory.

What all this meant was that there needed to be significant buying to push the S&P past all the selling that came into play when it nosed up against the top of its range.

And that now that the range has been breached, all the people who shorted are getting nervous and all the people who have been sitting on the sidelines are worrying that they're going to miss out on a big move higher.

Bid and Ask

Powerful stuff, especially because it's happening at the beginning of that mean ol' month of September. Many professional investors have thought that the market might have the usual fall meltdown, and they were holding back capital on the hope of buying at better prices in October. Now they have to rethink their tactics, because every day they keep cash on the sidelines could be a day that their portfolios underperform their peers. Potentially, said Lowry Reports analyst Richard Dickson, this could lead to a buying panic.

But aren't stocks pricey looking here? That's a view that many money managers share, but it isn't likely to keep them from buying. They recognize that the stocks are trading more technically than fundamentally, and they also recognize that with the economy in the midst of a growth spurt, the market is going to find it easy to look past steep valuations.

They know that while price may come back to haunt the market, it may not happen this year. And losing your job because you missed out on the rally -- even if your bearish view is ultimately proved right -- isn't something anyone wants.  Top of page

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