S&P 500 and US Dollar: Mid Week Review

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Two weeks ago, bullish signs were emerging for the S&P 500, SPX.  Last week, the bullish signs were vanishing and a bearish tone prevailed.  This week, SPX has bounced back from some of those bearish signals.  Notable is the SPX, at 1118.79, has regained and exceeded the 12-31-09 close of 1115.10 and the USD, at 80.00, has broken down through and closed below the 25 day simple moving average for the first time since January 15.

The S&P 500, SPX, at 1118.79, is up 0.87% for the week, up 4.18% for the month, up 0.33% for the year, and up 65.37% since the March 9, 2009 bottom. The US Dollar Index, USDX, at 80.00, is down 0.73% for the week, up 0.67% for the month, up 2.63% for the year, and down 10.28% since the March 9, 2009 top. The S&P 500 continues in an intermediate-term bear market and the US Dollar Index continues in an intermediate-term bull market. Both the S&P 500 and US Dollar Index are technically in long-term bull markets simultaneously. More about this in the analysis below and in the Summary at the end of this post.

S&P 500: Intermediate-Term Bear Market Continues

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, still indicates an ongoing bear market for the SPX. That is, the 25d sma is less than the 50d sma. This is the first such bear market signal since July 2009, occurring on February 10, and only the second one since the March 2009 bottom. The 2010 pullback, correction has created price damage that can only be repaired through sustained higher prices.

Resistance and Support The close of 1118.79, the highest yellow horizontal line, has mostly overcome the recent resistance area from sideways trading in November and December 2009. SPX had entered this resistance area on February 16 and has stayed in this range since. The trading lately has been generally identical to the aformentioned sideways trading in 2009. The resistance from the October 2009 highs has been overcome. Regaining the 1130+ price area and 2010 highs is now possible, with no major resistance above other than the 2010 highs.

Moving Averages SPX has regained and is now above the 50d simple moving average, an indicator of price strength.  The 25d sma bottomed on February 26 and is now ascending, another bullish sign.  The 50d, 100d, and 200d sma's are all ascending, which is a postive sign.  Most bothersome is the 25d sma breaking down through the 50d on February 10 and the 100d sma on February 23. However, the 25d is now ascending towards both.  The SPX closed above the 100d sma on February 24 and continues above.  Overall, though indications of price weakness persist, there are encouraging bull signals this week.

Trend Lines I have included two yellow uptrend lines. The higher uptrend line, a faster rate of price ascent, is from the March 9, 2009 closing low of 676.53 up through the January 29, 2010 closing low of 1073.87. I am using this as a benchmark to monitor SPX price performance. The SPX had broken down through this trendline last wee, but has regained and is above this week. The second, lower yellow uptrend line, a slightly slower rate of price ascent, is a more traditional trendline. This trendline is from the March 9. 2009 closing low of 676.53 up through the February 8, 2010 closing low of 1056.74. The February 8 closing low has been the bottom of this pullback to-date. The SPX has remained above this trendline since bouncing up above on February 9. Whether the SPX can continue above these trendlines, these rates of price ascent, will determine whether a bull market signal is generated sooner.

Long-Term Trend The lowest horizontal yellow line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The SPX is well above this 1062.38 signal with a close of 1118.79, which is the highest yellow horizontal line. The second highest yellow horizontal line is the 12-31-09 year end price of 1115.10.

Conclusion The SPX had a sustained rally off the lows of earlier this month through last week, pulled back some, trading sideways, and now has broken out upside. There has been uncertainty, but not fear.  The weakening of the US Dollar recently has assisted, which is expounded upon below.  Therefore, I don't foresee a huge drop in the SPX, excluding an international crisis. The bounce upwards needs to continue to generate higher prices that will eventually sustain a signal that an intermediate-term bull market has returned through ongoing price strength. The intermediate-term trend is still bearish, with encouraging bullish signals.  The long-term trend is still bullish.

US Dollar: Intermediate-Term Bull Market Continues

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, still indicates an ongoing bull market for the US Dollar. That is, the 25d sma is greater than the 50d sma and has been since mid-December 2009. This is the first such bull market since from early February 2009 through early April 2009. This is also the first bull market since the March 2009 highs and subsequent decline in a bear market. The rally has stalled since February 19, sideways trading ensued, and a pullback occurred this week..

Resistance and Support The close of 80.00, the highest yellow horizontal line, maintains the price in approximately the middle of the sideways trading range of February 5-17. The current price is also in the sideways trading range that occurred in May, June, and July 2009. The USD was not able to reach the June 15, 2009 closing high of 81.18 and has now pulled back.

Moving Averages As noted, the USD closed below the 25d sma for the first time since January 15, a bearish sign.  The USD is above 50d, 100d, and 200d sma's. The 25d sma is still ascending, as is the 50d and 100d sma's.  The 200d sma rate of descent is slowing. The 50d sma crossed above the 100d sma on January 22, 2010, signalling price strength. The 50d sma now has crossed above the 200d sma, the Golden Cross, on February 18. Both are very bullish signals. The 100d sma has not yet crossed the 200d sma. The US Dollar had gained and held the benchmark 80 price since February 17, but now has closed at this price, the highest yellow horizontal line.  Overall, these are indications the price strength, even though a pullback has occurred this week.

Trend Lines I have included two yellow uptrend lines. The higher uptrend line, a faster rate of price ascent, is from the January 14, 2010 closing low of 76.76 up through the February 16, 2010 closing low of 79.62. The USD has now broke though this trendline. The second, lower yellow uptrend line, a slower rate of price ascent, is a more traditional trendline. This trendline is from the November 27. 2009 closing low of 74.27 up through the January 14, 2010 closing low of 76.76. The USD has easily remained above this trendline since bouncing up above on January 19. Whether the USD can continue above these trendlines, these rates of price ascent, will determine how strong this bull market is.

Long-Term Trend The lowest horizontal yellow line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The US Dollar is above this 79.17 signal, the middle yellow horizontal line, with a close of 80.00, which is the highest horizontal yellow line. The highest yellow horizontal line is also the benchmark 80.00 price. The lowest horizontal yellow line is the 12-31-09 year end price of 77.95. A very long-term, well known downtrend line, not shown on this chart, from the January 2002 close of 120.22 down through the February 2009 close of 88.06, is still significantly above the USD current price, at approximately 83.50.

Conclusion The US Dollar has had a remarkable rally from the lows of late November and early December 2009. All the indicators reviewed above are positive for a continuing bull run. However, the rally has stalled this past week, sideways trading ensued, and now a small pullback has occurred. The intermediate-term trend is still bullish. The long-term trend is still bullish. See comments below in the Summary.

Summary

The US Dollar is bullish, but the rally has stalled first with sideways trading and now a small pullback. The SPX rebounded from a pullback, traded sideways, and now has had an upside breakout. There is uncertainty in the markets but not fear. I think as long as there is downward pressure on the Euro and the GBK, and perhaps the Yen, the US Dollar can rise and continue a rally. This creates downward presuure, a cap, on the SPX.

EUR/USD The EUR/USD signals are both intermediate-term and long-term bear markets, but a bottoming process began February 18.  There has been a rally this week, which has resulted in the USD pulling back.

USD/JPY The USD/JPY is in both an intermediate-term and long-term bear market. A recent rally of the USD versus the JPY has failed. This strengthening of the JPY has offset the US Dollar Index bull run to some extent.

GBP/USD The GBP/USD signals are both intermediate-term and long-term bear markets.  There has been a rally this week, which has resulted in the USD pulling back.

UUP and UDN ETFs Accordingly, the related signals for the US Dollar Index ETFs reflect the overall trend. The UUP ETF, the US Dollar Index Bullish Fund, is in both an intermediate-term and a long-term bull market. The UDN ETF, the US Dollar Index Bearish Fund, is in both an intermediate-term and a long-term bear market. The UUP has had an upside breakout above the 50d, 100d, and 200d sma's. The 50d sma crossed above the 200d sma, the Golden Cross, on Friday, February 26, 2010. The UUP did close below the 25d sma this week, the first time since January 11.  Conversely, the UDN has had a downside breakdown through the 50d, 100d, and 200d sma's. The 50d sma crossed below the 200d sma on February 22, 2010.  The UDN did close above the 25d sma this week, the first time since January 19.

The US Dollar Index is comprised of 6 currencies, which are weighted. The current intermediate-term and long-term signals, the USD trend versus that currency, are noted, after the weighting percentage, below:

EURO 57.6% Bullish, Bullish; a pullback has occured; trends appears intact for USD

JPY 13.6% Bearish, Bearish; a rally has failed so far; trends appears intact for USD

GBP 11.9% Bullish, Bullish; GBP has rallied this week; trends appear intact for USD

CAD 9.1% Bullish, Bearish; USD has broken down; trends appear to be bearish for USD

SEK 4.2% Bearish, Bullish; trends appear to be intact for USD

CHF 3.6% Bullish, Bullish, USD has pulled back, trends appear to be intact for USD

So, the Euro, JPY, and GBP are weighted a total of 83.1% of the US Dollar Index. Therefore, the USD trends versus Euro, JPY, and GBP are what has been driving the USD bull market. However, all 3 currencies, have recently rallied resulting in the USD pulling back.

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