My New 2013 Target for the S&P 500

After breaking a five-month reverse head-and-shoulders pattern, a new high for the trend has been established

By Sam Collins, InvestorPlace Chief Technical Analyst

 New York, Jan.18, stock advice .- On Thursday, stocks opened higher on better economic news, a possible new stimulus plan in Japan, and apparent progress in reaching a debt-ceiling agreement. The early gains continued for most of the day as buyers were encouraged by better-than-expected housing starts and higher building permits in December. At mid-afternoon, a lower-than-expected Philly Fed regional manufacturing index for January cut into the rally but failed to have much impact on the close.

At Thursday’s close, the Dow Jones Industrial Average was up 85 points to 13,596, the S&P 500 rose 8 points to 1,481, and the Nasdaq was up 18 points at 3,136. The NYSE traded 709 million shares and the Nasdaq crossed 389 million. On the Big Board, advancers beat decliners by 3-to-1, and on the Nasdaq, advancers were ahead by 2-to-1.

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We can finally say with supporting evidence that the S&P 500 has broken free of its five-month reverse head-and-shoulders pattern. The initial target of the break is the round number of 1,500, but as explained in our Jan. 10 Daily Market Outlook, “If the neckline at 1,466 is broken on a close, and with greater-than-average volume, a new high for the trend will have been established, and… the target would be at about 1,589.”

Therefore, my target for 2013 is S&P 500 at 1,589 or higher.

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Since the breakout of the S&P 500, all eyes will be on the Dow Jones Industrial Average. On Thursday, it came very near to closing higher than its five-year closing high at 13,610, and even penetrated it with an intraday high of 13,634.

A break of the old closing high and the peak high at 13,662 would trigger a Dow Theory confirmed “buy,” since the transports broke to a new high several weeks ago (see Jan. 16 Daily Market Outlook).

Conclusion: The breakout of the S&P 500, along with a strong move against resistance by the Dow industrials, is strong evidence that the bull is back. We may have wished for more volume and breadth, but with the majority of public investors still non-believers, we may not see an increase in volume until later in the year. The strongest sectors continue to be: financials (though down Thursday), industrials, technology, housing and materials. Investors and traders should focus on these areas. ...