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.
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.