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These Are The Market Levels to Watch This Week

Lawrence Lewitinn
Talking Numbers

What's next for the S&P 500 this week?

Many banks as well as Dow Jones Industrial Average component Alcoa report earnings this week. With the S&P 500 bouncing off its recent lows, what levels should you watch?

We asked CNBC contributor Abigail Doolittle, Technical Strategist at The Seaport Group, to exam the technicals. John Stephenson, author of “The Little Book of Commodity Investing” and Portfolio Manager at the $2.8 billion First Asset Investment Management, Inc., takes a look at the fundamentals.

For Doolittle, a look at a two-year chart shows, at first glance, an uptrend. However, prices are converging, according to Doolittle, into a pattern known as a bearish “broadening top”. “That shows uncertainty on the part of investors,” says a bearish Doolittle. “I think that this pattern is very likely to confirm to the downside at some point in the third quarter, possibly the fourth quarter, towards its target of 1,343.”

For this week, though, Doolittle is watching a price of 1,627. Failure to break that and the 50-day moving average will send the index towards its 200-day moving average 1,513, according to Doolittle.

Stephenson is generally more optimistic about the markets. “I think it’s actually going to go higher,” says Stephenson.

His view is that the there’s an underestimation of corporate performance. “What the market’s expecting is lower earnings,” says Stephenson. “If you look at the guidance from companies, it’s running at a six-to-one ratio of negative guidance versus positive guidance, which is three times normal. I think what that sets up is for some upside surprises.”

While higher interest rates should scare the market, Stephenson sees the sell-off in bonds as a boost to equities. “You have to go back to 1990 to find as much money coming out of bonds,” says Stephenson. “Where’s that money going to go? It’s going to go into the stock market.”

Stephenson sees a move of less than 1% on the upside by Friday, but that is just an indication of where it will go for the rest of 2013. “I think it’s going to be 1,645” says Stephenson. “And, it will be higher at the year-end because the fundamentals are supportive and the American economy has turned the corner and everyone knows it”.