The S&P 500, SPX, ended with a big day Friday: up +3.10% for the week and month, up +2.12% for the year, and up +68.31% since the March 9, 2009 market bottom. The US Dollar, USDX, was down slightly -0.29% for the week and month, up +3.22% for the year, and down -9.22% since the March 9. 2009 top. Even though the USD was relatively flat for the week, SPX surged upwards.
The SPX became the catalyst this week and the USD responded accordingly. In previous weeks the relationship was reversed. The Greece sovereign debt crisis is perceived, at least temporarily, as managed, and the USA February unemployment rate held steady at 9.7%. This created a cap on the USD rally and allowed the SPX to rally. The negative to the BLS February report was the U-6, a broader measure of underemployment and a more comprehensive guage, increased +0.3% to 16.8%. This is still below the October 2009 high of 17.4%. Overall, 9.7% is still much better than many were predicting back in 2009.
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 current close of 1138.70, the highest yellow horizontal line, is now at recent resistance from the sideways trading in January. The sideways trading resistance in November and December 2009 was overcome earlier in the week. SPX had entered that resistance area on February 16. The resistance from the October 2009 highs had been overcome even earlier. Regaining the Janaury 19, 2010 closing high of 1150.23 is now possible.
Moving Averages SPX regained the 50d simple moving average, an indicator of price strength, on March 1 and is now well above. The 25d sma bottomed on February 26 and is now ascending at an increasing rate, 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, few indications of price weakness persist, the bull signals increased in frequency and intensity 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 has regained and stayed above this trendline. 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 2010 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 1066.00 signal with a current close of 1138.70, which is the highest yellow horizontal line. The middle yellow horizontal line is the 12-31-09 year end price of 1115.10.
Conclusion The SPX has rallied significantly off the lows of February, has broken out upside, and is near the January 19, 2010 closing high of 1150.23. There has been uncertainty, but not fear. The weakening and leveling 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 such as a military event or sovereign debt 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 very 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 December 22, 2009. This is the first such bull market signal since from early February 2009 through early April 2009. This is also the first bull market since the March 9, 2009 clsoing high and subsequent decline into a bear market. The rally has stalled since February 19, sideways trading ensued, and a pullback occurred this week..
Resistance and Support The current close of 80.46, the highest yellow horizontal line, maintains the price just above sideways trading range of February 5-17, which is acting as support. The current price is 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 The USD tested the 25d sma on March 3 and 4, but has now closed above. This was the first test since mid January, a potentially bearish sign. The USD is above 50d, 100d, and 200d sma's. The 25d sma is still ascending, but the rate of ascent is decreasing. The 50d and 100d sma's are still ascending. 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 regained the benchmark 80 price on Friday, the middle 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 broke down though this trendline on February 26 and now has been below for 6 days. 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 79.25 signal, the lowest yellow horizontal line, with a close of 80.46, which is the highest horizontal yellow line. The middle yellow horizontal line is the benchmark 80.00 price. 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 83.45.
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.
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. Any further downward pressure primarily on the Euro, then the GBK, and perhaps the Yen, will determine whether the US Dollar can rise and continue a rally. This scenarion would create 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. The EUR did close above the 25d sma on March 3, the first time since January 18, but has now pulled back below. There has been a rally this week and the EUR is staying above the February 24, 2010 closing low of 1.34674, which has resulted in the USD pulling back.
USD/JPY The USD/JPY is in both an intermediate-term and long-term bear market. The USD has bounced above the March 3, 2010 closing low of 88.4590 and is well above the November 29, 2009 closing low of 86.3530. However, the 25d sma did break down through the 100d sma on March 1. This strengthening of the USD has assisted the US Dollar Index price in leveling off and offsetting EUR weakness.
GBP/USD The GBP/USD signals are both intermediate-term and long-term bear markets. The GBP has bounced up from the March 1, 2009 closing low of 1.49256 low, 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, the Black Cross, on February 22, 2010. The UDN did close above the 25d sma on March 3, the first time since January 19, but has now pulled back below. Conversely, the UUP closed below the 25d sma on March 3, the first time since January 19, but now has regained and stayed above.
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 and top 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, sideways trading, 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.