U.S. stocks continued to barrel higher last week, with both the Dow and S&P 500 notching record peaks and extending their weekly winning streaks to four. However, as Todd Salamone notes, various benchmarks are battling key levels right now, which could hint at a bout of profit-taking on the horizon. In addition, Rocky White offers a history lesson on when stocks and optimism rise in tandem, and why the current sentiment backdrop could be cause for concern.

• Why the lows of 2009 matter now
• How small-cap stocks are faring against their big-cap rivals
• Are we on pace to repeat 1995 -- or 1987?

Finally, we close with a preview of the major economic and earnings events for the week ahead, plus a featured sector to watch.

Notes from the Trading Desk: Millennium Marks and Round-Number Percentage Gains
By Todd Salamone, Senior V.P. of Research

"The next big area of potential resistance on the RUT is the 1,000 mark, as this would be the first test of this millennium level in its history. Long-time readers of Monday Morning Outlook know the significance of the 1,000 mark on the MID in its first attempts to cross this threshold in 2011-2012."
- Monday Morning Outlook, May 4, 2013

"If the equities market displays similar price action to that of early February, there could be additional upside during the next couple of weeks, despite the perception of it being overbought and primed to correct."
- Monday Morning Outlook, May 11, 2013

"Good Luck Shorting This Market."
- The Wall Street Journal "Morning MoneyBeat," May 17, 2013

Earlier this month, with the Russell 2000 Index (RUT - 996.28) at 954.42, we stated that the next potential area of major resistance would be in the 1,000 region. Only two weeks after this observation, the RUT has advanced more than 4% to an area just below this millennium mark -- tagging a new all-time intraday high of 996.47 in Friday's trading. With the RUT 1,000 coming into play amid an impressive rally, a potential speed bump lies just ahead. This sets up a battle between momentum players and profit seekers around a millennium number that is being tested for the first time in the RUT's history.

Coincidentally, as the RUT digs in to do battle with the 1,000 area, the S&P 500 Index (SPX - 1,667.47) and S&P MidCap 400 Index (MID - 1,211.54) have some work to do around the round-number percentage gains from their respective 2009 lows. For example, at 1,667, the SPX is 150% above the 2009 low of 666.79. The good news is that this level does not coincide with a round number, as it did when the SPX at 1,000 marked a 50% advance from the 2009 low. Looking at the first chart below, this proved to be a month-long speed bump from August-September 2009. However, as evidenced in the second chart, the SPX double off its 2009 low was in the 1,330-1,340 area -- neither a round number nor a century mark. After moving up to this zone in February 2011, it wasn't cleared on a noteworthy basis until one year later, but still came back into play several times even after the breakout.

Two other points of reference with respect to key benchmarks trading 150% above 2009 lows -- and the potential implications for the SPX at present -- include:

1. The 855 area on the RUT is 150% above its 2009 low of 342.59. It was first tested in April 2011, but it wasn't until January 2013 that it was successfully cleared.


2. The MID at 1,000 is 150% above its 2009 low of 397.97. This level was initially challenged in April 2011, and, again, it wasn't until January 2013 that a major move above this area took place. As we have mentioned in previous weeks, the MID is currently doing battle with the 1,200 area, which is roughly 200% above its 2009 low.

So, as we enter next week's trading, as well as the second half of May, various benchmarks are taking aim at both round-number levels and round-number percentage gains above their respective 2009 lows. This may inspire profit-taking or, at least, hesitancy among the bulls. In summation:

1. The RUT is staring up at the 1,000 millennium mark for the first time ever.


2. The SPX's 1,665 level is 150% above its 2009 low.


3. The MID is trading around 1,200 -- triple its 2009 low, and a potentially important round number given that the SPX and RUT are facing potential resistance, too.

The round numbers come into play as equity option buyers have pushed the 10-day average put/call volume ratio down to 0.52, indicating a hint of optimism among speculative traders. The last two times this ratio hit 0.50 were mid-December 2012 -- which preceded a slight pullback -- and late-March -- which preceded a consolidation and slight drift lower. Note on the chart below, though, that such price behavior quickly changes the sentiment landscape among this group. With many traders still convinced that we are due for a correction, this ratio will quickly pop once the market experiences an innocent pullback. In other words, the spikes in the ratio prove to be excellent buying opportunities.

Obviously, momentum can beget more momentum, and the technical backdrop suggests that while we could be in for sideways movement, or a slight pullback as round-number levels and percentage gains come into play, the sentiment backdrop continues to suggest upside potential. For example, despite a lot being made in the media about short covering and shorting being a tough game in this market, we find it of great interest that short interest on S&P component names is still up 8.1% year-over-year, 4.6% higher year-to-date, and down less than 1% from the last reporting period. This is encouraging for the bulls, even though possible speed bumps may be on the horizon.