Wednesday, February 17, 2010

Macro View through Key Prices - S&P 500


S&P 500 - Bull/Buy/Long Market Still Intact

Continuing the review of selected macroeconomic key prices with just the 10 month exponential moving average, long term trendlines, and key price support & resistance, today I look at equities throught the S&P 500 equities.  Yesterday I looked at the US Dollar, and update at the end of this post.

The chart below is the monthly closing price of the S&P 500, SPX, with the 10m ema in white and any key prices & trendlines in a yellow line. Prices above the 10m ema are indicating bullish markets, a buy/long signal, and below the 10m ema are bearish markets, a sell/short signal.  This would be considered an intermediate term to long term view and signal of the S&P 500.

The 10 month exponential moving average is indicating a bull market still exists.  The SPX February low of 1044.50 on Friday, February 5 has tested the 10m ema, but there was a bounce.  The 10m ema = 1048.10  and the close today was 1094.87, a 46.77 point cushion, or the price is 4.46% above the 10m ema.  This indicator clearly signalled a bull market in July 2009, that was tested early this month and now clearly signals the bull market is intact.

The horizontal lines are at key monthly prices of resistance and support:
1116.56 = December 2009 close & January 2010 open (resistance)
1098.89 = November 2009 close & December 2009 open (resistance)
1073.87 = January 2010 close & February 2010 open (support)


US Dollar  - Bull/Buy/Long Market Still Intact

Yesterday I reviewed the US Dollar and the 10 month exponential moving average.  This also indicated a bull market with a buy/long signal, just as the S&P 500 equities chart does above.  Hmm, what to make of this?
This monthly chart is from the peaks in the early 2000s until the present, Tuesday, February 16. The key price of 80 is noted in yellow. The well known long term trendline has been down. The USD breakout and close above the 10m ema occurred last month, January 2010, indicating a long signal, a bull market. A short signal had existed previously since May 2009. Although the 10m ema has been downward pinned this month, the USD is staying above the signal so far.

The key price of 80 was broken today.  Has 80 flipped from support to resistnance?  The US Dollar opened February at 79.51 and closed today at 79.62.  So 79.51 area is support and an important test.  The 10m ema = 78.79 and, of course, a breakdown below would indicate the market has changed from bull/buy/long to bear/sell/short.  There is a 0.83 cushion right now, the price is 1.05% above the 10m ema.
Both S&P 500 and US Dollar Are Bullish? 
Obviously something has to give here, both the S&P 500 and US Dollar can't be bull markets indefiinitely.  The signals indicate we are again in a transition or consolidation: the S&P 500 has pulled back and the US Dollar has strengthened.
Remember, this signal is an intermediate term to long term signal.
A similar situation, the inverse, occurred in 2009.  The US Dollar dropped below the 10m ema, signalling a bear market, in May 2009, and continued to do so until January 2010.  The S&P 500 was also signalling a bear market, until closing above the 10m ema in July 2009.  The S&P 500 has pinned the 10m ema earlier this month, but is now above, as noted above.
So, both the S&P 500 and US Dollar can both be in bull or bear markets until enough price strength or weakness is evident to affect the 10 month ema.  The transition periods occur during corrections, consolidations, and even reversals.
I personally believe the prices may churn sideways for awhile in both the S&P 500 and US Dollar, with neither making a decisive move up or down.  Using a moving average such as the 10 month exponential average would eventually result in a neutral signal for such sideways price action: a churning into neutrality, so to speak.
For now, the S&P 500 is signalling a stronger bull market than the US Dollar, therefore equities are showing stronger price strength than the US Dollar.  The S&P 500 is 4.46% above its 10m ema while the US Dollar is 1.05% above its 10m ema.

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