S&P 500: Bear Market Continues

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Overview

The S&P 500, SPX, is up +0.16% for the week, down -8.20% for the month, down -2.30% for the year, and up +61.03% since the March 9, 2009 market bottom. In  addition, SPX is down -10.50% from the April 23, 2010 YTD closing high of 1217.28.  The Euro, via the Euro/US Dollar price, EURUSD, tested the May 18 low on Wednesday, May 26, but has stayed above.  This has resulted in the US Dollar, USDX, topping out.  This is neutral to bullish for the SPX.  Uncertainty, even Fear, has entered the markets via the EU Crisis and the EU, ECB, IMF Bailout plus suspicion about the fairness of the markets (Flash Crash May 6) - a disastrous combination.  Lately the Euro has been the tail wagging the dog, that is, the Euro goes down then the US Dollar Index goes up and the SPX goes down or all of this vice versa.  As a result, technical and fundamental analysis are mostly meaningless during such a crisis.

The Big Question What happens now? Up, Down, Sideways?

What a difference a few weeks make.  We have several major market issues and variables.  Overall, I foresee short-term sideways trading with a downside bias until some of this market turmoil settles down.  By market turnoil, I mean the EU Crisis mostly.  Only then will the bottom, support, be in.  I have included commentary on the major market issues below the SPX technical analysis.  Volatility has been extreme, the VIX topped out at a YTD closing high of 45.79 on May 20.  VIX is now at 32.07, still high but off the extremes.

Major USA Equity Indexes The Russell 2000, NASDAQ Composite, NASDAQ 100, S&P 500, and Dow Jones Industrial Average 30 have all fallen well below the 2010 YTD lows, of course.  The bullish trends are broken.  For comparative purposes, the current price status plus intermediate-term and long-term trends and the date generated are:

S&P 500 Below 200d sma; Bear 5-20-10; Bear last week

Russell 2000 Below 100d sma; Bull 3-11-10, Bull July 2009

NASDAQ Composite Below 100d sma; Bear 5-21-10; Bull May 2009

NASDAQ 100 Below 100d sma; Bear 5-21-10; Bull April 2009

Dow Jones Industrial Average Below 200d sma; Bear 5-20-10; Bear this week

Currencies The two key currencies affecting the markets right now:

US Dollar Index Above 25d sma; Bull 12-21-09, Bull January 2010

Euro/US Dollar Below 200d sma; Bear 12-15-09; Bear December 2009

S&P 500: Bear Market Continues

S&P 500 Daily Chart Below is the SPX daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:

Current Close 1089.41 (Lower yellow horizontal line)

2010 YTD High 4-23-10 1217.28

YE 12-31-09 1115.10

10 Month EMA 1091.95 (Higher yellow horizontal line)

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signaled a bear market for the SPX on Thursday, May 20.  That is, the 50d sma is greater than the 25d sma. An intermediate-term bull market had previously been in effect since March 16.

Resistance The current close, the lower yellow horizontal line, has pulled back dramatically since the April 23 YTD closing high.  There are multiple levels of resistance above.  The 200 day simple moving average has proven to resistance and SPX has stayed below for 7 consecutive trading days.  The 1100 area, a benchmark and milestone price is just above. The 1150 area is also significant resistance. The 1200 area, a benchmark and milestone price, is significant resistance. SPX is at the consolidation trading range of late January and early February 2010.plus just below the peak occurring in October 2009. Until the markets calm down through less fear, suspicion, and therefore volatility, I don't think resistance is a factor right now.

Support There are multiple levels of support below, but as noted above regarding Resistance, until the markets calm down through less fear, suspicion, and therefore volatility, I don't think support is a factor right now.  The current close is at a price range support that was shown throughout November and into early 2009.

Moving Averages SPX has plunged through the 25d, 50d, 100d, and 200d simple moving averages. The 25d sma is now plunging sharply, below the 50d sma, and now at the 100d sma.  The 200d sma was absolutely critical support and has been broken through.  At least regaining the 200d would be encouraging this next week.  The 200d sma was last tested in early July 2009, a rally ensued.

Uptrend Line The 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 had been the bottom of the 2010 pullback, before this current plunge. SPX broke through this uptrend line on May 13 and has been below for 12 consecutive trading days.  I have left this uptrend line intact to observe when SPX can ultimately regain this rate of price ascent.

Downtrend Line The 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 April 23, 2010 YTD closing high of 1217.28. SPX has remained well below this downtrend line.

Relative Strength Index (RSI)

RSI 14 day = 33.08 is oversold, but still above the February 8 YTD low of 23.92

RSI 28 day = 37.00 is marginally oversold, just above the May 25 YTD low of 34.09

The RSIs are signalling oversold conditions but can go lower.

MACD (12,26,9) The MACD flipped to bearish on April 19 near the YTD high and plunged to -11.44 on May 7, the lowest reading since the October 2008 panic!  MACD is now uptrending.

Long-Term Trend The higher 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, the lower yellow horizonal line, dropped below this signal last week, indicating long-term bear market has arrived.

Conclusion Fear, suspicion and therefore volatility rule the markets presently, and the SPX has plunged accordingly.  Until the factors discussed below are reasonably resolved, especially the Euro Crisis, the markets remain in turmoil with a downside bias.  The intermediate term and long term trends are now bearish.  The technical indicators such as resistance, support, trendlines, RSIs, and MACD are pushed to extremes as a result of Fear.

Market News and Issues

A) Greece Sovereign Debt Crisis, now the Euro Crisis First Greece overspends, then the EU, ECB, and IMF bail the Greeks out, then fear of contagion to Portugal, Ireland, Spain, perhaps Italy and even UK increases.  This week Spain was downgraded by Fitch from AAA to AA and today, Sunday, May 28 the French Budget Minister said France could not ultimately maintain their AAA credit  rating.  First Greece was downgraded and crisis ensued, then Spain was downgraded - next Portugal and Ireland, then later Italy?*Now the value and viability of the Euro itself is suspect, along the EU banking system and overall EU financial and economic system.  Until the world is convinced the EU can hold together and remain viable, market fear and volatility will continue and the USA equity markets are in limbo with little hope of regaining the 2010 YTD highs.  The more the IMF intervenes to bailout the EU, the more the USA has, since the USA contributes billions to the IMF.  USA taxpayers to the rescue!  EU has solved the liquidity crisis, but whether the solvency crisis can be solved is in doubt.  Hence, the viability of the EU is in question.  Nouriel Roubini summed up the Euro Crisis here.

B) Financial Regulatory Reform Meanwhile, back in the USA, the political battle continues to reform the financial system, which creates uncertainty first within the financials sector.  Some more information on this is posted here.  After any financial reform is passed by Congress, this should eliminate the uncertainty for at least the rules of the road, and then the related financial system impact can be determined.

C) Leading Economic Indicators (LEI) This week the Economic Cycle Research Institute reported their Weekly Leading Index fell to a 39-week low and the annualized rate to a 47-week low.  Previously, The Conference Board reported last week that their USA Leading Economic Index decreased by -0.1% in April.  While this is an immaterial decline, it is nonetheless disappointing, and possibly disturbing, because any significant economic recovery should continue showing monthly positive gains for LEI.  For the 6 months ended April 30, the LEI has increased +4.4% to 109.3 (2004 = 100.0).  The LEI monthly increases in 2010 have been +1.3% in March, +0.4% in February, and +0.6% in January.  Since the equity markets are also considered leading indicators, this data is not bullish for USA equities.

D) Flash Crash! The fairness, objectivity, and validity of the entire USA equities markets, and other markets, is under suspicion.  Frankly, I think the entire USA financial system is being questioned, as noted below about Goldman Sachs.  The May 6, 2010 Flash Crash amplified and maginified the ongoing USA financial system debacle.  Are we being totally gamed, and controlled, by Wall Street?  Will the USA government take control and stop the Wall Street Banksters?  This Dylan Ratigan video sums it up.

E) Goldman Sachs & The USA Financial System  The SEC fraud charges against GS also bring into question the fairness, validity, and viablity of the USA financial system.  The Europeans are investigating GS and Merrill Lynch of Bank of America, Deutsche Bank, et.al.  There has even been a call for China to investigate Wall Street.  Until the Wall Street Banksters are brought to justice and financial system reform is implemented, the USA financial system is a fraud and corrupt - the USA taxpayers and citizens are being defrauded.  These investigations and charges will drag on indefinitely, probably for years. Markets could be impacted off and on as more Wall Street Banksters are hopefully removed from the financial and market systems.  More financial institutions will be hunted down and an examples made of them. The 3 credit rating agencies, S&P, Moody's, and Fitch also have gamed the system.  So there will be ongoing market reactions, just as with the EU, to contend with while trading.

F) Quarterly Earnings Season has all but been forgotten now that fear and suspicion rule.  Quarterly earnings have been very encouraging, especially in the technology, financial, and industrial sectors that I pay special attention to.

G) USA & World Economic Trends USA economic data has been overall positive and also for most of the World, especially Asia. USA jobs data is not great, but encouraging.  I reviewed the semi-annual IMF World Economic Outlook (April 2010) here.

Disclosure We are long AAPL, CRM, XLI, VMW.

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S&P 500 & Equity Market Review: Turmoil Rules!

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Overview

The S&P 500, SPX, is down -4.23% for the week, down -8.23% for the month, down -2.46% for the year, and up +60.77% since the March 9, 2009 market bottom. In  addition, SPX is down -10.65% from the April 23,  2010 YTD closing high of 1217.28.  The Euro, via the Euro/US Dollar price, EURUSD, has stabilized somewhat which has resulted in the US Dollar, USDX, topping out.  This is bullish for the SPX.  Uncertainty, even Fear, has entered the markets via the EU Crisis and the EU, ECB, IMF Bailout plus suspicion about the fairness of the markets (Flash Crash May 6) - a disastrous combination.  Lately the Euro has been the tail wagging the dog, that is, the Euro goes down then the US Dollar Index goes up and the SPX goes down or vice versa.  As a result, technical and fundamental analysis are meaningless during such a crisis.

The Big Question What happens now? Up, Down, Sideways?

What a difference a few weeks make.  We have several major market issues and variables.  Overall, I foresee short-term sideways trading with a downside bias until some of this market turmoil settles down.  Only then will the bottom, support, be in.  I have included commentary on the major market issues below the SPX technical analysis.  Volatility is extreme, the VIX closed at 40.10 on Friday, May 21, up an astronomical +157.38% from the 2010 YTD closing low of 15.58 on April 12.

Major USA Equity Indexes The Russell 2000, NASDAQ Composite, NASDAQ 100, S&P 500, and Dow Jones Industrial Average 30 have all fallen well below the 2010 YTD lows, of course.  The bullish trends are broken.  For comparative purposes, the current price status plus intermediate-term and long-term trends and the date generated are:

S&P 500 Below 200d sma; Bear 5-20-10; Bear this week

Russell 2000 Below 100d sma; Bull 3-11-10, Bull July 2009

NASDAQ Composite Below 100d sma; Bear 5-21-10; Bull May 2009

NASDAQ 100 Below 100d sma; Bear 5-21-10; Bull April 2009

Dow Jones Industrial Average Below 200d sma; Bear 5-20-10; Bull July 2009

Currencies The two key currencies affecting the markets right now:

US Dollar Index Above 25d sma; Bull 12-21-09, Bull January 2010

Euro/US Dollar Below 200d sma; Bear 12-15-09; Bear December 2009

S&P 500: Turmoil Rules!

S&P 500 Daily Chart Below is the SPX daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:

Current Close 1087.69 (Lower yellow horizontal line)

2010 YTD High 4-23-10 1217.28

YE 12-31-09 1115.10

10 Month EMA 1091.64 (Higher yellow horizontal line)

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signaled a bear market for the SPX on Thursday, May 20.  That is, the 50d sma is greater than the 25d sma. An intermediate-term bull market had previously been in effect since March 16.

Resistance The current close, the lower yellow horizontal line, has pulled back dramatically.  There are multiple levels of resistance above.  The 1100 area, a benchmark and milestone  price is  just above. The 1150 area is also significant resistance. The 1200 area, a benchmark and milestone price, is significant resistance. SPX is at the consolidation trading range of late January and early February 2010.plus just below the peak occurring in October 2009. Until the markets calm down through less fear, suspicion, and therefore volatility, I don't think resistance is a factor right now.

Support There are multiple levels of support below, but as noted above regarding Resistance, until the markets calm down through less fear, suspicion, and therefore volatility, I don't think support is a factor right now.  The current close is at a price range support that was shown throughout November and into early 2009.

Moving Averages SPX has plunged through the 25d, 50d, 100d, and 200d simple moving averages. The 25d sma is now below the 50d sma.  The 200d sma was absolutely critical support.  A bounce above the 200d would be very encouraging this next week.  The 200d sma was last tested in early July 2009, a rally ensued.

Uptrend Line The 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 had been the bottom of the 2010 pullback, before this current plunge. SPX has broken through this uptrend line.  I have left this uptrend line intact to observe when SPX can ultimately regain this rate of price ascent.

Downtrend Line The 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 April 23, 2010 YTD closing high of 1217.28. SPX is well below this downtrend line.

Relative Strength Index (RSI)

RSI 14 day = 29.45  is oversold, but still above the February 8 YTD low of 23.92

RSI 28 day = 37.33 is marginally oversold, just above the May 20 YTD low of 35.04

The RSIs are signalling oversold conditions but can go lower.

MACD (12,26,9) The MACD flipped to bearish on April 19 near the YTD high and plunged to -11.44 on May 7, the lowest reading since the October 2008 panic!  MACD is at and even below the dismal days of the March 2009 market bottom.

Long-Term Trend The higher 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, the lower yellow horizonal line, dropped below this signal this week, indicating a long-term bear market is being tested..

Conclusion Fear, suspicion and therefore volatility rule the markets presently, and the SPX has plunged accordingly.  Until the factors discussed below are reasonably resolved, especially the Euro Crisis, the markets remain in turmoil with a downside bias.  The intermediate term and long term trends are now bearish.  The technical indicators such as resistance, support, trendlines, RSIs, and MACD are pushed to extremes as a result of Fear.

Market News and Issues

A) Greece Sovereign Debt Crisis, now the Euro Crisis First Greece overspends, then the EU, ECB, and IMF bail the Greeks out, then fear of contagion to Portugal, Ireland, Spain, perhaps Italy and even UK increases.  Now the value and viability of the Euro itself is suspect, along the EU banking system and overall EU financial and economic system.  Until the world is convinced the EU can hold together and remain viable, market fear and volatility will continue and the USA equity markets are in limbo with little hope of regaining the 2010 YTD highs.  The more the IMF intervenes to bailout the EU, the more the USA has, since the USA contributes billions to the IMF.  USA taxpayers to the rescue!  EU has solved the liquidity crisis, but whether the solvency crisis can be solved is in doubt.  Hence, the viability of the EU is in question.

B) Financial Regulatory Reform Meanwhile, back in the USA, the political battle continues to reform the financial system, which creates uncertainty first within the financials sector.  Some more information on this is posted here.  After any financial reform is passed by Congress, this should eliminate the uncertainty as at least the rules of the road, and the related financial system impact, can be determined.

C) The Conference Board USA Leading Economic Index (LEI) TCB reported this week that the USA LEI decreased by -0.1% in April.  While this is an immaterial decline, it is nonetheless disappointing, and possibly disturbing, because any significant economic recovery should continue showing monthly positive gains for LEI.  For the 6 months ended April 30, the LEI has increased +4.4% to 109.3 (2004 = 100.0).  Since the equity markets are also considered leading indicators, this data is not bullish for USA equities.  The LEI monthly increases in 2010 have been +1.3% in March, +0.4% in February, and +0.6% in January.

D) Flash Crash! The fairness, objectivity, and validity of the entire USA equities markets, and other markets, is under suspicion.  Frankly, I think the entire USA financial system is being questioned, as noted below about Goldman Sachs.  The May 6, 2010 Flash Crash amplified and maginified the ongoing USA financial system debacle.  Are we being totally gamed, and controlled, by Wall Street?  Will the USA government take control and stop the Wall Street Banksters?  This Dylan Ratigan video sums it up.

E) Goldman Sachs & The USA Financial System  The SEC fraud charges against GS also bring into question the fairness, validity, and viablity of the USA financial system.  The Europeans are investigating GS and Merrill Lynch of Bank of America, Deutsche Bank, et.al.  There has even been a call for China to investigate Wall Street.  Until the Wall Street Banksters are brought to justice and financial system reform is implemented, the USA financial system is a fraud and corrupt - the USA taxpayers and citizens are being defrauded.  These investigations and charges will drag on indefinitely, probably for years. Markets could be impacted off and on as more Wall Street Banksters are hopefully removed from the financial and market systems.  More financial institutions will be hunted down and an examples made of them. The 3 credit rating agencies, S&P, Moody's, and Fitch also have gamed the system.  So there will be ongoing market reactions, just as with the EU, to contend with while trading.

F) Quarterly Earnings Season has all but been forgotten now that fear and suspicion rule.  Quarterly earnings have been very encouraging, especially in the technology, financial, and industrial sectors that I pay special attention to.

G) USA & World Economic Trends USA economic data has been overall positive and also for most of the World, especially Asia. USA jobs data is not great, but encouraging.  I reviewed the semi-annual IMF World Economic Outlook (April 2010) here.

Disclosure We are long AAPL, CRM, XLI, VMW.

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Market Update: Euro Above Lows, Testing Downtrend Line

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The Euro is in the 1.232 range, above the 1.223 bottom area of Sunday.  If the Euro holds this will slow down or stop the US Dollar surge upwards and maybe take the upside cap off of the  S&P 500.  If the Euro goes up, the US Dollar goes down, SPX goes up.  If the Euro goes down, the US Dollar rallies upwards, the SPX goes up.  For now, the Euro is the leading indicator and the EU confidence indicator.

Below are charts for the Euro/US Dollar, US Dollar Index, and S&P 500 with brief commentary.  The Euro has been descending, the US Dollar is ascending, and the S&P 500 is in limbo with an uncertain trend.

Euro: Above Lows of Yesterday

Below is the hourly chart for the Euro/US Dollar since the close on Friday, May 7.  The yellow horizontal line is the Euro at 1.27507, the Friday, May 7 close before the EU announced the bailout on early Monday morning, May 10.  The Euro has been below henceforth and is in full bear market mode, closing at 1.23147 on Friday, May 14.

On Monday was the first time since May 7 that the Euro has been above the higher downtrend line.  Currently the Euro has pulled back below the higher downtrend line at the 1.232 area.

US Dollar Index: Slight Pullback from 2010 YTD Highs

Below is the daily chart for the US Dollar Index for 2010.  The yellow horizontal line is the USD at 84.59, the Friday, May 7 close before the EU announced the bailout on early Monday morning, May 10.  The USD pulled back some that Monday, then went up Tuesday through Friday.  USD has been in full bull market mode since bottoming on November 25, 2009.

S&P 500: Still In Limbo

Below is the daily chart for the SPX for 2010.  The yellow horizontal line is the S&P 500 at 1110.88, the Friday, May 7 close before the EU announced the bailout on early Monday morning, May 10.  SPX rallied mightily on Monday, May 10 but gave a considerable amount back on Thursday and Friday, May 13 and 14 to close at 1135.68 last week.

SPX is below the 25, 50, and 100 day simple moving averages, has been below the 50d sma since Wednesday, May 5, and has been testing the 100d sma since Thursday, May 6.  Even the critical support and benchmark price of 1150 has been broken through to the downside.  SPX remains below the yellow uptrend line, from the March 9, 2009 closing low of 676.53 up through the February 8, 2010 closing low of 1056.74. 

Observations

The declining Euro reveals the uncertainty and even now fear in the global markets.  Simply put, there is an ongoing EU Viability Crisis, which then manifests as a Euro Value Crisis.

First there was the Greece fiscal meltdown and impending meltdowns of Portugal, Spain, Ireland and perhaps later Italy.  This resulted in both an EU liquidity and solvency crisis.  The EU, ECB, IMF Bailout of a week ago intervened on the liquidity crisis but not the solvency crisis.  The solvency problem can only be resolved by political will through very tough austerity measures in the affected countries.  The austerity measures will take several years to correct the problem and will likely keep those countries in or near a recession.  The uncertainty of whether these countries will continue implementation of the austerity measures next year 2011, 2012, and further out is being questioned by the markets.

I don't know how the markets will calm down.  So far, USA and Global economic data is positive.  If the EU implodes this would undoubtedly negatively impact the global economic recovery, including the USA.  Frankly, I think the USA & stronger European countries are and will be forced to continuing intervening to save the EU.  Whether that is ultimately a good idea is questionable but I think inevitable at any cost.

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Overnight Market Update: Euro, US Dollar, S&P 500 (EU Viability Crisis Continues)

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The Euro is now diving into the low 1.23 range, which strengthens the US Dollar and is bearish for the S&P 500.  The declining Euro reveals the uncertainty and even now fear in the global markets.  Simply put, there is an ongoing EU Viability Crisis, which then manifests as a Euro Value Crisis.

First there was the Greece fiscal meltdown and impending meltdowns of Portugal, Spain, Ireland and perhaps later Italy.  This resulted in both an EU liquidity and solvency crisis.  The EU, ECB, IMF Bailout of a week ago intervened on the liquidity crisis but not the solvency crisis.  The solvency problem can only be resolved by political will through very tough austerity measures in the affected countries.  The austerity measures will take several years to correct the problem and will likely keep those countries in or near a recession.  The uncertainty of whether these countries will continue implementation of the austerity measures next year 2011, 2012, and further out is being questioned by the markets.

I don't know how the markets will calm down.  So far, USA and Global economic data is positive.  If the EU implodes this would undoubtedly negatively impact the global economic recovery, including the USA.  Frankly, I think the USA & stronger European countries are and will be forced to continuing intervening to save the EU.  Whether that is ultimately a good idea is questionable but I think inevitable at any cost.

Below are daily charts for the Euro/US Dollar, US Dollar Index, and S&P 500 with brief commentary.  The Euro is descending, the US Dollar is ascending, and the S&P 500 is in limbo with an uncertain trend.

Euro: This Is What a Vote of No Confidence Looks Like

The yellow horizontal line is the Euro at 1.27507, the Friday, May 7 close before the EU announced the bailout on early Monday morning, May 10.  The Euro has been below henceforth and is in full bear market mode, closing at 1.23147 on Friday, May 14.

US Dollar Index: This Is What a Safe Haven Looks Like

The yellow horizontal line is the USD at 84.59, the Friday, May 7 close before the EU announced the bailout on early Monday morning, May 10.  The USD pulled back some that Monday, then went up Tuesday through Friday.  USD is in full bull market mode, closing at 86.23 on Friday, May 14.

S&P 500: In Limbo

The yellow horizontal line is the S&P 500 at 1110.88, the Friday, May 7 close before the EU announced the bailout on early Monday morning, May 10.  SPX rallied mightily on Monday, May 10 but gave a considerable amount back on Thursday and Friday, May 13 and 14 to close at 1135.68 for the week.  SPX is below the 25, 50, and 100 day simple moving averages, has been below the 50d sma since Wednesday, May 5, and has been testing the 100d sma since Thursday, May 6.  Even the critical support and benchmark price of 1150 has been broken through to the downside.

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Euro at 2010 Low, US Dollar at 2010 High

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Euro: At 2010 Closing Low (1.2356)

The Euro is down -3.14% for the week, down -7.08% for the month, down -13.73% for the year, and now down -1.13% since the March 3, 2009 previous market low.  The EU, ECB, and IMF announced a $1 trillion bailout last weekend to rescue Greece, weaker EU countries, the European financial system, and the EU monetary and currency system (Euro).  Fiscal austerity measures were agreed to by the most financially weakened EU countries, including Greece, Portugal, and Spain.  The larger, more financially sound EU countries such as Germany and France did the bailing out of the smaller, financially weak EU countries.

Germany and France have committed their own resources to save the EU and the Euro.  The optimistic view says the $1 trillion rescue package will work.  The austerity measures that Greece and other EU countries have agreed to are harsh, will hold those economies back in or near recession, but should show positive results in about 3+ years.  The negative view is that the EU Bailout won't work ultimately.  Nouriel Roubini is in this camp and states his opinion here.

This week's Euro Crash has had a bearish, downside result for USA and Global equities.  Hence, the intense scrutiny worldwide by investors, bankers, economists, governments, et. al. in  the Euro, EU, ECB, IMF, and the overall crisis in Europe.  Europe's crisis could be a drag on external economies such as the USA.  However, so far the GDP growth of the EU, Euro Zone, and some member countries is still reasonably positive, for now.

Below is the Euro/US Dollar daily chart for 2010.  The higher yellow horizontal line is the Friday, May 7 close of 1.27507 which was before the EU Bailout on Sunday, May 9.  The lower yellow horizontal line is the Friday, May 14 close of 1.23560, a full trading week after the EU Bailout.  So far, markets have clearly cast a vote of no confidence.  The yellow downtrend line, of no consequence presently other than emphasize how far the Euro has sank, is from the peak high on November 25, 2009 of 1.511 down through the peak high on April 13, 2010 of 1.36599.

US Dollar: At 2010 Closing High (86.23)

The US Dollar Index is up +1.94% for the week, up +5.38% for the month, up +10.62% for the year, and now down only -3.30% since the March 9, 2009 market top.  USD is in full blown bull market, safe haven mode as a result of the EU and Euro Crisis. 

Below is the US Dollar Index daily chart for 2010.  The highest yellow line is the downtrend line from the March 9, 2009 closing peak of 89.17 down through the current close, May 14, 2010 of 86.23.  The lower lavender line is a very long term downtrend line from January 2002 closing peak of  120.22 down through the March 9, 2009 closing peak of 89.17.  The Euro Crash this week propelled the US Dollar through this long term downtrend line.

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S&P 500 & Euro: Definite Maybe

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S&P 500: In Limbo

Below is the daily line chart for the S&P 500, SPX from the bottom of the previous 2010 pullback, February 8, through today.  SPX is below the 50 day simple moving average and above the 100d sma, almost exactly between them.  This is not an encouraging sign and the bears are undoubtedly thinking the SPX is defying gravity.  The yellow horizontal line is the benchmark 1150 price.

What is revealing on this SPX daily line chart is the yellow uptrend line, a measure of the rate of price ascent.  This uptrend line is from the March 9, 2009 closing low of 676.53 up through the February 8, 2010 closing low of 1056.74 (the SPX broke down through this uptrend line on Flash Crash Thursday, May 6). Yesterday, the SPX pinned upwards through this trendline but closed right at the trendline. Today, SPX failed to break through the trendline upside.

Until SPX regains and holds above the 50d sma and the noted uptrend line, a bullish signal for many traders, the S&P 500 is in limbo.

Euro: EU Bailout Enthusiasm Evaporates

Below is the daily line chart for the Euro/US Dollar for 2010.  The EU, ECB, IMF, USA Taxpayer bailout of Greece, weaker EU countries, EU financial system, and the Euro itself was supposed to strengthen the Euro, mitigate some of the strength of the US Dollar, and rally USA and Global equities back to "pre-Europe Crisis" levels.  Hmm, this hasn't happened yet.

Instead of a hoped for Euro rally above 1.30 (the higher yellow horizontal line) and onwards and upward to over 1.32, the Euro is testing 1.27 (lower horizontal yellow line).  This is bearish for USA equities, notably the SPX.  As a result of the Euro weakness, the US Dollar is staying near the 2010 YTD highs in the 84.50 area.

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Flash Crash Thursday: Jon Stewart Comments!

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Nightmare on Wall Street

http://www.thedailyshow.com/watch/mon-may-10-2010/a-nightmare-on-wall-street

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S&P 500, US Dollar, Euro Update

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Overview

The EU, ECB, IMF announcement of massive intervention, upwards of $1 trillion, to rescue and stabilize Greece, weaker EU countries, the EU financial system, and the Euro currency resulted in a positive response worldwide, but cautious, in general.  Equities rallied worldwide, but the Euro did not spike upwards in strength as might have been predicted.  However, this is only Day 1 of the post-EU Crisis, presumably.  I am overall optimistic about the EU, USA, and Global economies.  The EU obviously got themselves in quite a mess, which will take several years to straighten out, but I believe they have it's probable they will succeed.

The EU liquidity crisis has now been resolved but the solvency crisis will only be resolved with time through austerity measures which take political will. So, time will be the test for the EU solvency crisis.  I remain optimistic because the EU members in question have no other choice now but to cut fiscal budgets.

S&P 500

The S&P 500, SPX, closed at 1159.73 today.  This price has regained and held the key 1150 benchmark price on today's relief rally & short squeeze resulting from the nearly $1 trillion EU, ECB, IMF rescue of Greece, weaker EU countries, the EU financial system, and the Euro currency.

The 1150 benchmark price was previous key support, which was easily broken through on Flash Crash Thursday, May 6. This price was also resistance in mid March and even earlier in mid January. If the SPX can hold this regaining of 1150, this would be bullish.

Below is the SPX daily chart for 2010.  The yellow horizontal line is the benchmark 1150 price. The intermediate term and long term signals remain bullish for the SPX.

Notable is the uptrend line, a measure of the rate of price ascent, from the March 9, 2009 closing low of 676.53 up through the February 8, 2010 closing low of 1056.74.  SPX broke down through this uptrend line on Flash Crash Thursday, May 6.  Today, the SPX pinned upwards through this trendline but closed right at the trendline. (I double checked my trendline as I could not believe this at first, lol).

The SPX tested the 200 day simple moving average on Thursday and Friday, but has now bounced above and closed above the 100 day sma today.  Next would be for SPX to regain the 50d sma, which is 1171.63.

SPX needs to stay above 1150 to remain in bullish mode and the next test of resistance will be the 1200 area, as the SPX bulls attempt to regain all the lost ground since the 2010 YTD closing high on Friday, April 23 of 1217.28.  I commented more specifically about some of the USA equities markets variables in a post on Sunday.

Overall, being bullish, I was satisfied with today's relief rally, but not as encouraged as I hoped I would be as the trading day progressed.  I was hoping the Euro would rally more significantly, which I review below.

US Dollar

The US Dollar, pulled back a mere -0.39 or -0.46% today on the EU bailout announcement and related USA and worldwide equities relief rally.  This shows the ongoing strength of the USD and continuing demand for USD.  Perhaps this also indicates that the shift to risk assets is muted at present and the USD is still acting as a safe haven.

Below is the USD daily chart for 2010.  The yellow horizontal line is the 84.20 Monday close.  USD remains in full bull market mode.

The USD remains above a very long-term, well known downtrend line, the lavender line.  This trendline is from the January 2002 close of 120.22 down through the March 9, 2009 close of 89.17. USD actually broke through this downtrend line to the upside last week and remains above

Euro/US Dollar

A bothersome sign is that the EUR/USD has not regained and held euro 1.30. This price was pinned to the upside overnight on Sunday, but the Euro then fell back below this benchmark price. I question whether a USA equities is sustainable, and specifically that the SPX can continue upwards above 1150 and retake 1200, unless 1.30 is first regained by the Euro and an upside breakout results. An upside breakout would also indicate confidence in the Euro, and therefore in the massive European fiscal, financial, and monetary intervention.

Below is the Euro/US Dollar daily chart for 2010.  The benchmark 1.30 price is the yellow horizontal line.

Obviously the Euro, after Day 1 of the EU announcement of massive intervention, is still significantly down for the year.  The currency market response was one of caution, certainly not enthusiasm, subsequent to the EU announcement.  I am interpreting this as a "wait and see" attitude in forex.

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S&P 500 Regains 1150 Benchmark

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The S&P 500, SPX, has regained the 1150 benchmark price on the relief rally & short squeeze resulting from the nearly $1 trillion EU, ECB, IMF rescue of Greece, weaker EU countries, EU financial system, and the Euro currency.

The 1150 benchmark price was previous key support, which was easily broken through on Flash Crash Thursday, May 6.  This price was also resistance in mid March and even earlier in mid January.  If the SPX can hold this regaining of 1150, this would be bullish.

Below is the SPX daily chart from the March 9, 2009 market bottom up through late morning Monday, May 10.  The yellow horizontal line is the benchmark 1150 price.  The intermediate term and long term siignals remain bullish for the SPX.

A bothersome sign is that the EUR/USD has not regained and held euro 1.30.  This price was pinned to the upside overnight, but the Euor has fallen back below.  I question whether a USA equities is sustainable, and specifically that the SPX can continue upwards above 1150 and retake 1200, unless 1.30 is first regained by the Euro and an upside breakout results.  An upside breakout would also indicate confidence in the Euro, and therefore in the massive European fiscal, financial, and monetary intervention.

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S&P 500 and US Dollar: EU Bailout Update

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The EU has announced tonight a massive bailout agreement to support the weaker EU countries (notably Greece), the EU financial system, and the Euro in general.  The IMF also approved their portion of the Greece bailout.

The EUR/USD currency cross has stopped descending and USA equities futures are up on this announcement.  Overall, the world markets are reacting favorably.

As already noted by analysts, the EU liquidity crisis has now been resolved but the solvency issue will only be resolved with time through austerity measures which take political will.  So, time will tell about the EU solvency crisis.

While the fear in the global markets should decrease now, this does not resolve the suspicion resulting from the Flash Crash on Thursday nor the distrust and injustice in the USA financial system.  However, the very good quarterly earnings season and positive USA and global economic news should now be more realistically priced in the USA equities markets with a decent rally henceforth.

As a result, we probably are seeing that the bottom is in for the S&P 500, SPX, at least for now and will see a relief rally.  Conversely, the US Dollar is probably topping out at least for the short term.  As I noted in my previous post, earlier today, the technical indicators for both the S&P 500 and US Dollar had been pushed to the extreme by the fear and suspicion that was the prevailing market sentiment.  Hopefully, the fear has subsided, yet the suspicion issue has yet to be resolved.

The major business news websites are reporting the details:

http://www.cnbc.com/

http://www.marketwatch.com/

http://www.bloomberg.com/

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S&P 500 and US Dollar: Weekend Review (5-7-10 Close)

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Foreward (or Forewarned?)

I was out of town and busy on some projects the last few weeks as we watched the USA equity markets top out, then a possible consolidation, then a possible pullback, then a pullback, then a major pullback, then a Flash Crash.  The Flash Crash raises serious questions about the fairness, objectivity, and validity of the entire USA equity market system, as well as other markets.  Are the rest of us being gamed by Wall Street, the Quants, the Computers?  The flash trading has to be stopped, the rest of us are at an obvious disadvantage to Wall Street.  The high frequency trading is a questionable practice because of potential abuse that needs serious review by the regulators.

Overview

The S&P 500, SPX, is down -6.39% for the week and month, down -0.38% for the year, and up +64.20% since the March 9, 2009 market bottom. The US Dollar, USDX, is up +3.37% for the week and month, up +8.52% for the year, and down -5.14% since the March 9, 2009 top.

Fear has entered the markets plus suspicion of the fairness of the markets - a disastrous combination.  SPX closed Friday, May 7 at 1110.88, over 100 points below the 2010 YTD closing high on Friday, April 23 of 1217.28. Conversely, the US Dollar has gained on fear, spiking up to a close of 84.59 on Friday, May 7.  The 2010 YTD closing high for USD was on Thursday, May 6 of 84.85.

The Big Question What happens now? Up, Down, Sideways?

What a difference a few weeks make.  We have several major issues and variables.  Overall, I say sideways with a downside bias until some of this turmoil settles down.

A) Flash Crash! As noted above in the Foreward, the fairness, objectivity, and validity of the entire USA equities markets, and other markets, is under suspicion.  Frankly, I the entire USA financial system is being questioned, as noted below about Goldman Sachs.  The Flash Crash amplified and maginified the ongoing USA financial system debacle.  Are we being totally gamed, and controlled, by Wall Street?  Will the USA government take control and stop the Wall Street Banksters?  This Dylan Ratigan video sums it up.

B) Greece Sovereign Debt Crisis, now the Euro Crisis First Greece overspends, then the EU and IMF bail the Greeks out, then fear of contagion to Portugal, Ireland, Spain, perhaps Italy and even UK increases.  Now the value and viability of the Euro itself is suspect, along the EU banking system and overall EU financial system.  Until EU, which was working on their fiscal and financial problems this weekend, hopefully resolve their crisis, the USA equity markets are in limbo with little hope of regaining the 2010 YTD highs.  The more the IMF intervenes to bailout the EU, the more the USA has, since the USA contributes billions to the IMF.  USA taxpayers to the rescue!

C) Goldman Sachs  The SEC fraud charges against GS bring into question the fairness, validity, and viablity of the USA financial system.  The Europeans are investigating GS and Merrill Lynch of Bank of America, Deutsche Bank, et.al.  Until the Wall Street Banksters are brought to justice and financial system reform is implemented, the USA financial system is a fraud and corrupt - the USA taxpayers and citizens are being defrauded.  These investigations and charges will drag on indefinitely, probably for years. Markets could be impacted off and on as more Wall Street Banksters are hopefully removed from the financial and market systems.  More financial institutions will be hunted down and an examples made of them. The 3 credit rating agencies, S&P, Moody's, and Fitch also have gamed the system.  So there will be ongoing market reactions, just as with the EU, to contend with while trading.

D) Quarterly Earnings Season has all but been forgotten now that fear and suspicion rule.  Quarterly earnings have been very encouraging, especially in the technology, financial, and industrial sectors that I pay special attention to.

E) USA & World Economic Trends USA economic data has been overall positive and also for most of the World. USA jobs data is encouraging.  I reviewed the semi-annual IMF World Economic Outlook (April 2010) here.

Other Major Indexes The Russell 2000, NASDAQ Composite, NASDAQ 100, Dow Jones industrial Average 30 have all fallen well below the 2010 YTD lows, of course.  The trends are being tested right now and could break in the next week.  For comparative purposes, the current intermediate-term and long-term trends and the date generated are:

S&P 500 Bull 3-16-10, Bull July 2009
US Dollar Bull 12-21-09, Bull January 2010
Russell 2000 Bull 3-11-10, Bull July 2009
NASDAQ Composite Bull 3-15-10, Bull May 2009
NASDAQ 100 Bull 3-15-10, Bull April 2009
Dow Jones Industrial Average Bull 3-16-10, Bull July 2009

Disclosure We are long AAPL, CRM, XLI, VMW.

S&P 500: Fear Returns

S&P 500 Daily Chart Below is the SPX daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:
Current Close 1110.88 (Middle yellow horizontal line)
2010 YTD High 4-23-10 1217.28
YE 12-31-09 1115.10 (Highest yellow horizontal line)
10 Month EMA 1095.86 (Lowest yellow horizontal line)

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signalled a bull market for the SPX on Tuesday, March 16. This signal remains intact.  That is, the 25d sma is greater than the 50d sma. An intermediate-term bear market had previously been in effect since February 10, only the third such bear market signal occurring since the March 9, 2009 bottom.

Resistance The current close, the middle yellow horizontal line, has pulled back dramatically.  There are multiple levels of resistance above.  The 1200 area, a benchmark and milestone price, is significant resistance.  The 1150 area is also significant resistance.  SPX is at the consolidation trading peaks of mid-November through early December 2009 plus just above the February 19 peak.  Until the markets calm down through less fear and suspicion, I don't think resistance is a factor right now.

Support There are multiple levels of support below, but as noted above regarding Resistance, until the markets calm down through less fear and suspicion, I don't think support is a factor right now.

Moving Averages SPX has plunged through the 25d, 50d, and 100d simple moving averages. Even the 200d sma has been tested on Thursday and Friday, May 6 and 7.  The 200d sma is the line in the sand, frankly, and is being watched closely by traders as absolutely critical support.  The 200d sma was last tested in early July 2009, a rally ensued.

Uptrend Line The 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 had been the bottom of the 2010 pullback, before this current plunge. SPX has broken through this uptrend line.

Downtrend Line The 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 April 23, 2010 YTD closing high of 1217.28. SPX is well below this downtrend line.

Relative Strength Index (RSI)

RSI 14 day = 28.96 is oversold, but still above the February 8 YTD low of 23.92

RSI 28 day = 39.29 is marginally oversold, but still above the February YTD low of 37.03

The RSIs are signalling oversold conditions but can go lower.

MACD (12,26,9) The MACD has plunged to -11.44, the lowest reading since the October 2008 panic!  MACD is even below the dismal days of the March 2009 market bottom.

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, the middle yellow horizonal line, tested this signal on Thursday and Friday, May 6 and 7 but has closed above.

Conclusion Fear and suspicion rule the markets presently, and the SPX has plunged accordingly.  Until the factors discussed are reasonably resolved, especially the Euro Crisis, the markets remain in turmoil with a downside bias.  The intermediate term and long term trends remain bullish, but precariously so.  The technical indicators such as resistance, support, trendlines, RSIs, and MACD are pushed to extremes as a result of Fear.

US Dollar: Spikes Upwards on Fear

US Dollar Daily Chart Below is the USD daily chart from the November 25, 2009 closing low up to through current 2010 price.

Noteworthy Closing Prices on daily chart below:
Current Close 84.59 (Highest yellow horizontal line)
2010 YTD High 3-25-10 84.85
YE 12-31-09 77.95 (Lowest yellow horizontal line)
10 Month EMA 80.68 (Middle yellow horizontal line)

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, 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 The current close, the highest yellow horizontal line, is just below the May 6, 2010 YTD closing high, which is now recent resistance. USD is now above any recent resistance and is trading in the March through May 2009 area, even earlier trading in 2009, and the troughs occurring in November 2008.

Support There are multiple levels of support below, now that the USD is just below the 2010 YTD highs.

Moving Averages USD is well above the 25d, 50d, 100d, and 200d simple moving averages.  All are ascending and beginning to fan out in a bullish pattern, as the USD pulls the sma's upwards.  The 50d crossed above the 200d sma, the Golden Cross, on February 18. The 100d sma crossed above the 200d sma on March 29.

Uptrend Line The uptrend line, a rate of price ascent, is from the November 25. 2009 closing low of 74.24 up through the April 14, 2010 closing low of 80.19. The November 25 low has been the bottom, since the March 9, 2009 peak. The April 14 low has been the bottom of the most recent pullback. USD is well above this uptrend line.

Downtrend Line The downtrend line, a rate of price descent, is from the March 9, 2009 high of 89.17 down through the May 6, 2010 YTD closing high of 84.85. USD pulled back from the YTD high Friday.

Downtrend Line Very Long-Term A very long-term, well known downtrend line, the lavender line, is from the January 2002 close of 120.22 down through the March 9, 2009 close of 89.17. USD actually broke through this downtrend line to the upside this week and remains above.

Relative Strength Index (RSI)

RSI 14 day = 81.93 is overbought, but dipped below the May 6, 2010 YTD high of 86.25
RSI 28 day = 67.22 is reasonable and below 2010 YTD highs
The RSIs indicate short term overbought conditions but reasonable intermediate term conditions.

MACD (12,26,9) The MACD has skyrocketed upwards and is the highest since January 2009.

Long-Term Trend The middle yellow horizontal 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 highest yellow horizontal line.

Conclusion Fear and suspicion rule the markets presently and the USD has spiked upwards accordingly. Until the factors discussed are reasonably resolved, especially the Euro Crisis, the markets remain in turmoil with a downside bias and the USD has an upside bias. The intermediate term and long term trends remain bullish.  The technical indicators such as resistance, support, trendlines, RSIs, and MACD are pushed to extremes as a result of Fear.

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