Way back in the spring, I set a target for the S&P 500 of 1100-1200. That target was based on technical analysis and it is near to being fulfilled. Here’s the analysis as it stands today:

The green area is bounded on the bottom by the long term downtrend line and on the top by a support line that was broken last October. Both lines represent targets with equal, in my mind anyway, chance of being achieved. For the rally to end at the downtrend line would conform with technical analysis and rallying to the previous support line would also be acceptable. The finer line I’ve drawn in was a very minor support point on the way down and may offer some resistance on the way back up.

The message here is that this rally, according to the technicals, is nearing an end. That doesn’t mean we’re about to resume cliff diving, but it does mean that the rapid uptrend is likely coming to an end. I have to say that with earnings season off to such a good start it is hard to see a reason for the rally to stop, but technical analysis does not take that into account. I don’t just use technical analysis to make decisions but it does play a part. For now, the current technical setup makes me want to err on the side of caution. That means postponing new purchases and protecting profits.