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Last week we wrote:

"This was a very bullish week for the S&P 500 Index - SPX as well as for all the major stock indexes, especially the small caps. After two weeks of a mini-correction, that had multiple one-day selloffs yet never did lose ground when looking at the weekly charts, stocks soared on Monday and Tuesday of this week, followed by smaller gains on Wednesday and Thursday, and then another rally on Friday after the new Unemployment Report was announced showing a decrease to 7.7%."

This week:

Although Friday may not have set the record for number of Dow positive closes in a row that many financial news folks were looking for, the week was certainly a bullish one. In fact only Friday was a down day, with the rest of the week closing higher every day in all the major indexes, including the S&P 500 Index - SPX that we track here.

The stock market is in the midst of a momentum run. Any good news or even slightly positive news results in fast gains and bad news tends to be forgotten quickly.

Typically such rallies move higher than anyone expects.

There is no way to know when this one will reach its end. We are closing in on the percentage gains achieved in the November 2011 to April 2012 rally as well as the June 2012 to September 2012 rally.

If history repeats, we may well see profit-taking over the next several weeks.

Looking at the economy:

According to Manpower’s employment-outlook survey released Tuesday employers are expecting to hold hiring steady in the second quarter, with gains in a wide variety of industries and across the country. A seasonally adjusted net 11% of employers said they plan to add to their workforce in the second quarter, down one percentage point from the first quarter but up one point from the same period in the prior year.

The Commerce Department said Wednesday business inventories jumped 1.0% in January to a seasonally adjusted $1.64 trillion.

On Wednesday, the Mortgage Bankers Association said the total number of mortgage applications filed in the U.S. last week slipped 4.3% as interest rates increased.

On Wednesday, the Commerce Department said retail sales advanced 1.1% in February to mark the biggest gain in five months.

On Thursday, the number of people applying for new U.S. unemployment benefits fell by 10,000 to 332,000 in the week ended March 9, marking the second lowest level in five years.

On Thursday, the Labor Department said U.S. wholesale prices shot up a seasonally adjusted 0.7% in February, driven by a spike in gasoline costs. Gas prices jumped 7.2% in the biggest monthly gain since September. Excluding the volatile categories of food and energy, so-called core wholesale prices rose a smaller 0.2%, matching the increase in January.

U.S. consumer prices rose 0.7% in February for the largest gain since June 2009. Gasoline prices rose 9.1%, also making the largest jump since June 2009, and accounted for almost three-fourths of February’s gain in the consumer price index. The broader price category for energy increased 5.4%. The core CPI, which excludes volatile categories of food and energy, rose 0.2%.

On Friday, the Federal Reserve said industrial production rebounded in February after a weak report in the prior month on the back of stronger manufacturing and utility production. Total production rose 0.7%, just above economists' forecasts of a 0.6% gain.

Looking at the charts:

Last week we wrote; "The SPX closed just below critical resistance at 1555.57. How the SPX 1555 level affects the markets may be determined next week."

The SPX has now closed above this resistance level at 1555.57. The advance is moving so quickly we would have to fix initial support at the rising 50-day moving average line, currently at SPX 1507.34 and changing daily.

There is strong support at the prior rally high as well as at the 50% retracement support level at SPX 1453 and the 61.8% retracement support level at SPX 1427.

Small caps again had a very powerful week and this sector is important in any rally. Small caps strength indicates this is a rally that is fueled by institutional as well as individual investors.

Momentum runs can go further than anyone expects. This is a momentum run and we will stay with it until it reverses.

Both the SPX and the Dow Jones Industrials Average are above new round number highs. For the SPX it is 1,500 and for the DJIA it is 14,000. In the world of trading, round numbers are important levels that are seen as indicators of success and strength as well as getting attention in financial news.

Eleven weeks ago, on Wednesday, January 2nd, we had a strong new bullish indicator when up volume exploded at the NYSE. Up volume on the NYSE exceeded down volume by a ratio of 10 to 1. When we see this ration at 9 to 1 or better it is a rare event. If we have another such day within the next three months it is called a double barrel buy signal (Martin Zwieg - Winning on Wall Street). Of course we are in the rally this indicator forecasted so it already has been validated.

The CBOE Market Volatility Index - VIX closed the week at the 11.30 level. Typically we look at VIX 20.0 as the dividing line between bullish (below) and bearish (above) markets. So VIX is very bullish at this time.

Conclusion:

The SPX has again closed at new highs, breaking out decisively above the May 2008 highs and now well above the September 2012 highs.

QE3 is in progress and is a stronger program than anyone expected, with open-ended printing of new money at the rate of $85 billion monthly (total of two programs) until full employment is again reached. "Never bet against the Fed" is an old rule. In this case the Fed has pulled out all the stops with the huge money printing QE3 program.

The SPX portion of this strategy is BULLISH in the Rydex Nova S&P 500 Fund - RYNVX (or other bullish S&P index fund).

S&P 500 Index (SPX) Daily Chart

S&P 500 Index (SPX), Weekly Chart

Nasdaq 100 Index (NDX) Chart Analysis

Last week we wrote:

"The Nasdaq 100 Index - NDX appears to have awakened this week with a solid rally that finally has closed above the important NDX 2782.78 level (see daily chart below). Importantly, after closing above this level on Tuesday, it stayed above on Wednesday through Friday and closed at a new short term high on Friday."

This week:

The Nasdaq 100 Index - NDX spent the week just above the NDX 2782 level, again trading in a sideways pattern.

On the positive side, the index closed near its highs for this advance, holding onto gains but not progressing higher as we would like.

The NDX 2782 level will become support, though it is still very close to where we closed for the week. NDX 2750 to NDX 2736 are just below and are also support.

Two weeks ago we wrote: "We still look at NDX 2782 as the point of breakout for the NDX. The index has underperformed for a while but if we close above this 4/3/12 high we will then be looking for continued gains in coming weeks."

There was a bullish crossover of the 50-day moving average line and the 200-day moving average line on both the daily and weekly charts. This occurred in early January.

Could we still see a corrective "wave c" in this index? It is unlikely, but with this index lagging the SPX by a substantial degree, we have substantial chart confusion.

Conclusion:

The NDX has made a breakout by closing above its April 3, 2012 rally high.

The NDX has continued to trade sideways, but now just above that NDX 2782 line.

We continue to hold the bullish position with the expectation that the NDX will eventually join the rally.

The NDX portion of this strategy is BULLISH and in the Rydex NDX 100 Fund - RYOCX  (or other bullish NDX 100 index fund).

Nasdaq 100 Index (NDX), Weekly Chart