The market is off to a great start this week, powered by last week's momentum and further buoyed by a lessening of fears about Europe's sovereign debt. All the major indices are above their 50-day and 200-day moving averages, with the S&P 500 finally breaking out of the 1120 resistance level, closing today at 1141, a new 4-month high. As an interesting historical aside, the 1120 resistance level was first encountered way back in April 1998.

One hesitates to put too much emphasis on any given week when discussing market trends, but this week could be the tipping point for the current market. Despite the S&P 500's 50-point gain last week on virtually no news at all, the fact remains that it is still more than 12% below the April 23rd high of 1217 and still has not broken out of the downward channel that began on April 26.

This week should be another interesting one, but it’s hard to say whether it can match the market’s behavior last week when it donned rose-colored glasses to view four days of mixed economic data.

It has been a week of sparse market-moving news, but what news there was continued to be generally supportive of the market’s slow growth recovery. Remarkably, volatility continues to be very low. Unlike the 6 to 10% gyrations (in both directions) of late 2008 and early 2009, we’ve seen very few days this year when the market has moved more than 1% in either direction.

by David Brown, Chief Market Strategist

David Brown