Scouting the S&P's No Man's Land

The hallmark of World War I was trench warfare. Both the Allied and Central powers each dug in and fought brutal battles often to a stalemate. "No Man's Land" was the parcel between the opposing trenches. For one side to advance and gain new territory, its solders would need to exit the relative safety of the trenches and venture into the clear line of fire of the enemy in No Man's Land.

Luckily, the investing world is not one of life or death situations, but it is a war in its own sense and very important to individuals lives and the economy in which we live.

If you were to lay a chart of the S&P 500 flat on the table it would look like the map of a battlefield. After a very successful 16-month offensive by the bears, in March the Bulls were finally able to amount a counter-offensive which they hope to be their Battle of Amiens. Attacks and counterattacks, rallies and declines.

The No Man's Land in this battle is the range between 1000 and 1100 on the S&P 500. The bulls have recently launched scouting expeditions above the 1000 level to perform some reconnaissance but have yet to commence a major offensive. They are trying to consolidate their gains and ready the troops for what will be the hardest fought portion of this rally.

There are several reasons the 10% range between 1000 and 1100 is significant. Most important, we need to remember the end of last September. After hearing Fed Chairman Ben Bernanke and former Treasury Secretary Paulson testify several times how important it was to pass the Emergency Economic Stabilization Act of 2008 -- what we refer in the vernacular to as TARP -- Congress voted down the measure on Sept. 29. That day the S&P 500 sold off 8.7% and closed at 1106.39.

That major move in relation to a major event illustrates the importance of the 1100 level. Fast forward a few days to Oct. 6, in two sessions the S&P 500 cut through 1100 to 1000 level. Since Oct. 6 there have been five sessions where the S&P 500 has closed above the 1000 level -- three of them occurred this week.