S&P 500 and US Dollar: Week End Review

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The S&P 500, SPX, is up +0.99% for the week, up +4.12% for the month, up +3.13% for the year, and up +69.98% since the March 9, 2009 market bottom. The US Dollar, USDX, is down -0.80% for the week, down -1.09% for the month, up +2.39% for the year, and down -10.49% since the March 9, 2009 top.

The S&P 500, SPX, closed Friday at 1149.99, just below the 2010 closing high of 1150.24 set the day before on Thursday.  The Thursday closing high had just beat the previous 2010 high of 1150.23 on January 19. That's as close as you can get and call it a new 2010 closing high on Thursday.  Of course, the 1150.00 area is considered critical recent resistance. Therefore, the current close of 1149.99 is considered "at resistance" and this resistance has been tested for 2 days now.

The Big Question; What happens now? An upside breakout or pullback? I believe there will be an upside breakout. This recent resistance may be tested several times, but I think an upside breakout is inevitable and imminent. The Russell 2000 regained and exceed it's 2010 high first, followed by the NASDAQ Composite and then the NASDAQ 100. Now SPX is at this threshold. The Dow Jones Industrial Average is lagging behind the SPX. This has been a familiar pattern during this rally from the March 0, 2009 low as the NASDAQ 100, NASDAQ Composite, and/or Russell 2000 has led the rally with the S&P 500 following and then the Dow Jones Industrial Average lagging in the back. The US Dollar has been trading sideways and is now pulling back since the Greece sovereign debt crisis has subsided. USA economic news recently has been slightly encouraging to lukewarm, but nothing too negative.

As I have stated in previous posts, there is some uncertainty, but not fear, in the markets.  As of now, the official unemployment rate peaked in October 2009, but the official underemployment rate, U-6, has increased recently.  This Great Recession, as with all recessions, results in a certain amount of restructuriing of the economy, which is in progress.  JP Morgan stated, in their commentary this week, that as uncertainty decreases an investment portfolio should be more weighted in risky assets such as equities.  JPM also went as far to say that the recovery is being underestimated.  At present, I am not bearish on equities but slightly cautious.  I do not foresee a double dip recession or another significant economic downturn.  The withdrawal of significant federal economic stimulus will result in a flattening of the rebound and perhaps a small pullback. I do see a long, slow recovery as the economy restructures to the new economic paradigm.

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. For comparison, For comparative purposes, the current intermediate-term and long-term signals and the date generated are:

S&P 500 Bear 2-10-10, Bull July 2009

US Dollar Bull 12-21-09, Bull January 2010

Russell 2000 Bull 3-11-10, Bull July 2009

NASDAQ Composite Bear 2-11-10, Bull May 2009

NASDAQ 100 Bear 2-10-10, Bull April 2009

Dow Jones Industrial Average Bear 2-5-10, Bull July 2009

S&P 500: Intermediate-Term Bear Market Continues

Noteworthy Closing Prices
Friday Current 1149.99 3-12-10
Thursday Prior 1150.24 3-11-10 (2010 Closing High)
Previous 2010 High 1150.23 (1-19-10)
YE 12-31-09 1115.10
10 Month EMA 1068.06

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.  It appears now that an intermediate-term buy/long/bull signal will be generated this next week.

Resistance and Support The current close, the highest yellow horizontal line, is now exactly at recent resistance from the 1-19-10 and 3-11-10 closing highs. All other recent resistance has been overcome and have become multiple levels of support below.

Moving Averages SPX has regained the 25d, 50d, 100d, and 200d simple moving averages and is now well above all. 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. The 25d sma has regained the 100d sma and is ascending towards the 50d sma.

Uptrend Line The yellow uptrend line, a measure of the rate of price ascent, 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 the 2010 pullback to-date. The SPX has remained above this trendline since bouncing up above on February 9, a bullish signal.

Downtrend Line The yellow downtrend line, a measure of the rate of price descent, is from the October 9, 2007 all-time closing high of 1565.15 down through the January 19, 2010 closing high of 1150.23. The 2010 closing high is the YTD high so far. On March 5 the SPX broke upside though this trendline, a bullish signal.

Relative Strength Index (RSI)

RSI 25 day 78.75 overbought

RSI 14 day 78.25 overbought

I would normally think the SPX way too overbought and a pullback and/or consolidation is imminent.  However, I think the US Dollar will not strengthen significantly and will push the SPX above the recent resistance noted.  At that point I would expect a slight pullback and consolidation with the current SPX price area as support.

MACD (12,26,9) The MACD is bullish and has been since March 4.

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 signal at the current close, 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 from lows of February and just barely set a new 2010 closing high on Thursday.  SPX is at the last recent resistance.  I believe an upside breakout through this recent resistance is imminent because the Russell 2000, NASDAQ 100, and NASDAQ Compositie have already done so. The RSI indicates SPX is overbought, so a major upside breakout is questionable but will be fueled by a weakening US Dollar.  The weakening and leveling off of the US Dollar has assisted, which is expounded upon below. Therefore, I don't foresee a significant pullback in the SPX, excluding an international crisis such as a military event or sovereign debt crisis. An intermediate-term bull market signal should be generated this next week.  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

Noteworthy Closing Prices
Current 79.81
2010 High 80.93 (2-23-10)
YE 12-31-09 77.95
10 Month EMA 79.13

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 21, 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 closing high and subsequent decline into a bear market.

Resistance and Support The current close, the second lowest yellow horizontal line, drops the price to the 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 has also broke down through the benchmark 80.00 price, the second highest yellow line.

Moving Averages The USD tested the 25d sma on March 3, 4, 8 and now broke down through on March 11, a bearish sign.  The USD is above 50d and 100d sma's are still ascending, and the 25d and 200d sma's are flat.  The 50d sma now has crossed above the 200d sma, the Golden Cross, on February 18. The 100d sma has not yet crossed the 200d sma.

Uptrend Line The yellow uptrend line, a rate of price ascent, is from the November 25. 2009 closing low of 74.24 up through the January 14, 2010 closing low of 76.76. The November 25 low has been the bottom, since the March 9, 2009 peak. The USD is now testing this uptrend line. Whether the USD can continue above this trendline, a rate of price ascent, will determine how strong this bull market is.

Downtrend Line The yellow downtrend line, a rate of price descent, is from the March 9, 2009 high of 89.57 down through the February 23, 2010 closing high of 80.93. The 2010 closing high is the YTD high so far. The USD has been struggling with this trendline since February 23 and has not been able to stay above.  The USD is literally riding the underside of this downtrend line!

Downtrend Line Very Long-Term A very long-term, well known downtrend line, not shown on this chart, from the January 2002 close of 120.22 down through the March 9, 2009 close of 89.17, is still significantly above the USD current price, at approximately 83.30+.

Relative Strength Index (RSI)RSI 25 day 49.11 reasonable
RSI 14 day 36.88 oversold
The last 3 days price decrease has pushed the RSI 14 day down into oversold levels.  However, the 25d is still reasonable.

MACD (12,26,9) The MACD is bearish and has been since February 16, 2010.

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 USD is above this signal at the current close, which is the second lowest yellow horizontal line. The second highest yellow horizontal line is the benchmark 80.00 price and the highest yellow horizontal line is the February 23, 2010 closing high of 80.93, the YTD high.

Conclusion The US Dollar has had a remarkable, rather unexpected, rally from the lows of late November and early December 2009. This rally has recently stalled, sideways trading ensued, and now a pullback. The RSI 14d is indicating oversold but the RSI 25d is reasonable.  USD has now broken down through the benchmark 80.00 price.  I question how much upside momentum is left at least in the short term. I believe additional sideways trading may occur and a trading range established. The intermediate-term trend is still bullish. The long-term trend is still bullish. See additional comments below in the Summary.

Summary

The US Dollar is bullish, but the rally has stalled initially with sideways trading and now a pullback. The SPX rebounded from the 2010 pullback, traded sideways, and now is at the 2010 highs.  There is some 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 some 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 and sideways trading began February 18. The EUR has closed and stayed above the 25d sma since March 10. The EUR is staying above the February 24, 2010 closing low of 1.34674, which has resulted in the USD rally stalling. RSI 25d is a reasonable 52.981 and MACD has been bullish since February 16.

USD/JPY The USD/JPY signals are both intermediate-term and long-term bear markets. 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. The 25d, 50d, and 100d sma's are all converging just above 90. The 25d sma did break down through the 100d sma on March 1. This strengthening of the USD, and now the sideways trading, has assisted the 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 and regained the losses from the sideways tradiing.

UUP ETF (US Dollar Index Bullish Fund) The UUP signals are both an intermediate-term and long-term bulls markets, reflecting the overall trend of the USD reviewed above.  Both trends have stalled and may be reversing.

UDN ETF (US Dollar Index Bearish Fund) The UDN signals are both an intermediate-term and long-term bear markets, reflecting the overall trend of the USD reviewed above. Both trends have stalled and may be reversing.

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 top and pullback has occured; trends have stalled for USD

JPY 13.6% Bearish, Bearish; a rally has failed so far; trends have stalled for USD

GBP 11.9% Bullish, Bullish; a top and pullback has occurred; trends have stalled for USD

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

SEK 4.2% Bearish, Bullish; trends have stalled for USD

CHF 3.6% Bullish, Bullish, trends have stalled for USD

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 had been driving the USD bull market. However, all 3 currencies, have recently rallied resulting in the USD generally pulling back and trading sideways.

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