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After Massive Stock Market Rally, Will S&P Break Out or Break Down

On Friday investors were dissecting every blip and dip in the S&P trying to determine if the rally was stalling out – or about to unleash more firepower.

Over the past 5 days the S&P 500 has advanced more than 8 percent, its best weekly performance since March 2009.

Fundamentals suggest the bulls still have the wind at their backs.

The latest jobs report showed unemployment dropped as companies hired more workers. Also published reports suggested the ECB was gearing up to lend as much as 200 billion euros to the IMF in a bid to ease the debt crisis.

As positive as all that sounds, the Fast Money pros think the technicals will tell the story going forward.

The S&P 500 came within striking distance of its 200-day moving average, an important technical level, and turned briefly positive for the year – but then pared gains.

”1265 is the 200-day,” explains trader Steve Grasso. And he says how the market behaved as it neared that level is telling. “A couple little rumors flirted around the floor and it was enough for the market to quickly give up 1%.”

In other words, after the sharp gains, there’s skepticism that current levels can hold.

Pete Najarian is also seeing that skittishness creep back into the market. “The Vix is again creeping higher,” he says. “It suggests people are again starting to get nervous.”

”I think a negative headline could send the market to 1200,” Grasso adds. And he’s concerned that negative headlines could come on December 8th at the next ECB meeting in Brussels.

Trader Josh Brown reminds that there’s another side to this story – potentially a positive headline could come out of the ECB meeting.

And in the event the market breaks above 1265 – the 200-day, “investors will freak out and start buying – that’s the level where a lot of fence sitters come in and get aggressive into year’s end,” he says.

*You can find our conversation about the key levels in the S&P about 10 minutes into this video clip.


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Trader disclosure: On Dec 2, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian is long AAPL; Najarian is long C; Najarian is long JPM calls; Najarian is long WFC calls; Najarian is long INTC; Najarian is long YHOO; Najarian is long PFE; Najarian is long TEVA; Brown is long VOD; Brown is long SBUX; Kinahan is long C; Kinahan is long GS through options; Grasso owns AKS; Grasso owns AMR; Grasso owns ASTM; Grasso owns AVAV; Grasso owns BA; Grasso owns BAC; Grasso owns D; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns PRST; Grasso owns S; Grasso owns XLU; Ilczyszyn is long gold; Ilczyszyn is long Oil; Ilczyszyn is long Euro

For Steve Grasso
Stuart Frankel & Co. and its partners own CSCO
Stuart Frankel & Co. and its partners own CUBA
Stuart Frankel & Co. and its partners own GERN
Stuart Frankel & Co. and its partners own GM
Stuart Frankel & Co. and its partners own HPQ
Stuart Frankel & Co. and its partners own HSP
Stuart Frankel & Co. and its partners own HSPO
Stuart Frankel & Co. and its partners own JPM
Stuart Frankel & Co. and its partners own MET
Stuart Frankel & Co. and its partners own MSFT
Stuart Frankel & Co. and its partners own MU
Stuart Frankel & Co. and its partners own NYX
Stuart Frankel & Co. and its partners own PRST
Stuart Frankel & Co. and its partners own RDC
Stuart Frankel & Co. and its partners own UAL
Stuart Frankel & Co. and its partners own WFT
Stuart Frankel & Co. and its partners own XRX

For Colin Gillis
RESEARCH IN MOTION (RIMM): Investment banking (next 3 months): BGC Financial LP and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from all of the companies referenced within this report.

For Vic Alboini
Alboini and a group of shareholders own 10% of RIMM shares

For Fadel Gheit
VALERO (VLO): Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3 months from VLO.

For George Davis
RBC is a market maker in European currencies

For Catherine Arnold
PFIZER (PFE): I, Catherine J. Arnold, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities.






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