S&P 500: What Could Go Wrong?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK ( ETF Digest) -- The S&P 500 chalked up 11 weeks in a row without printing a down week. The only time that has even come close to happening over the past 20 years was January to April 1998 at the launch of the dot-com bubble. But that was only 10 weeks.

The market has gotten every miracle it asked for. Even on exceedingly low volume, miraculous money has appeared just when the market starts to dive. Headlines of miraculous bailouts in Europe hit the media with precision accuracy.

With the S&P showing its first down week (a frightening -0.50%), Ben Bernanke just happens to make a speech before the market opens with every wink and nudge of another round of QE (i.e., "free money"). This week, central bankers are meeting in Paris which always produces a Willy Wonka adventure for the market.

What could possibly go wrong?

Greek bond default? $4 per gallon gasoline? 8.3% unemployment? Iran-Israel tension? Portugal and Spain bond defaults? No problem.

For the gamblers reading this, what are the odds of rolling a seven after you've thrown a seven 11 times in a row? Right! Exactly the same odds every time. In fact, one might even begin to believe the dice are loaded. Or even a miracle!

Let's take a look at our miracle on the S&P 500 Weekly chart ( SPY).

I've only included one indicator at the top of this chart -- the Money Flow Index -- which I deem to be one of the best indicators for supply and demand. If we look back to the euphoria of QE2 during 2010 of $5 billion per day of "free money," we see that the MFI only went into the extreme overbought realm above 80 for three weeks.

We are currently in our sixth week of being overbought on the MFI. Incidentally, the only other time the MFI was overbought for six consecutive weeks was in October 2006. But that only reached a level of 85, not the current feverish pitch of 91. I suspect I don't need to tell you how that miracle turned out.

Now let's go to the volume at the bottom of the chart. The blue line on the volume is the 52-week moving average. Since the first of the year, volume has been about two-thirds its average volume over the past year. This causes me to ask, "If this is a bull market even greater than the '98-'99 dot-com market, why aren't investors participating?" Shouldn't the volume be way above average if the market is going to go straight up week after week, seemingly forever?

If we look at long-term channel formed over the past three years, price projection should take (SPY) to $155 (or 1550 on the S&P 500) -- its all-time high! Why isn't everybody on earth piling into this slam-dunk miracle?

Brothers and sisters, it's a miracle! Do you believe?

Of course you don't! And neither do the 33% of traders not participating in this market. In fact, the VIX is so low that traders aren't even putting shorts on because that will just feed a manufactured short squeeze.

There is simple physics of supply and demand. Once everybody who intended to buy has bought, the price has to drop for new buyers to come in. Typically, fund managers will do "window dressing" at the end of a quarter, floating the market higher for a pleasant quarterly report to their clients. This Friday, March 30, ends the quarter. As we saw at the end of previous quarters, fund managers raced to be the first to sell off the inflated market.

As Mike and the Mechanics sang "All I Need Is a Miracle," so this market will sing at the first of April. Personally, I won't be in the chorus. Let's see if the fund managers start heading for the exit on Friday or if we'll see Bernanke and the media produce rainbows and unicorns.

Follow my intraday market commentary and various other observances on Facebook and Twitter.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.