Wednesday, June 30, 2010

S&P 500: Another Day, Another 2010 Low (Charts)


Uncertainy, even Fear, about the Viability of the USA & Global Economic Recovery

S&P 500 Scorecard at June 30
The first half of 2010 is over. 2010 began with uncertainty about the USA economic recovery but data in Q1 was encouraging. As the H1 continued, especially in June, the data deteriorated suggesting a slowdown or even stalling of the recovery. The S&P 500, SPX is down -4.28% for the week, down -5.39% for the month, down -7.57% for the year 2010, up +52.35% since the market bottom on March 9, 2009, and down -15.33% from the 2010 YTD closing high of 1217.28 on April 23.

S&P 500, 1040, Support
Yesterday, June 29, the SPX closed just above 1040. Today, June 30, SPX broke down through 1040 to close at 1030.71 which is a new 2010 YTD closing low. The selloff and breakdwon came in the last hour of trading, which is  a sign of fear. 1040 was critical support and there is a long history of interaction with the 1040 price. As noted yesterday, the next support was about 1030.98, the August 27, 2009 peak.

SPX closed today at this support, which is the late August 2009 peaking formation. Next support below now is the 2009 peaking action of 1012.73, 1010.48, and 1005.65 on August 13, 7, and 4, respectively. However, for the market, 1040 was a benchmark price and the next lower key price is 1000. Interaction with 1,000 previously was from early August 2009 through early September 2009.

Wall of Worry Grows Bigger
A few more negative economic news today: 1) the ADP USA National Employment Report for May was an anemic and immaterial +13,000 jobs increase for nonfarm private employment, 2) the Chicago purchasing managers index fell to 59.1% from 59.7% in May which means manufacturing growth is increasing at a decreasing rate, 3) Moody's placed Spain's AAA credit rating on downgrade watch (Fitch and S&P have already downgraded Spain from AAA), and 4) housing starts in Japan unexpectedly dropped in May -4.6% YoY.

Add to today's news the list from yesterday: The Conference Board issued a correction and downward revision of China's leading economic index for April plus reported a plunge in USA consumer confidence. Japan reported higher unemployment and a slowing of industrial production. The G20 summit over the weekend offered no realistic solutions for the global economy or the huge sovereign debts of the developed countries. The USA leading economic indicators are declining or flat. The USA Q1 GDP was revised downwards to +2.7% and probably 3.0+% is necessary to generate jobs and reduce the unemployment rate. USA housing starts tanked in May and bank lending is still contracting.

Add the European sovereign debt crisis which creates both EU fiscal and financial system crises on top of all these aforementioned concerns plus Greek national strikes plus concerns about a double-dip recession, even talk of a depression, and you have the S&P 500 at a new YTD low of 1030.71. Investor confidence is ranging from uncertainty to fear.

Now the market waits for both the weekly unemployment claims on Thursday and the monthly June employment report on Friday. The market appears to be pricing in the worst case scenario. The USA economic news recently has been a net negative, that is the negative has outweighed the positive. On top of that any negative news from Europe and Asia magnifies the uncertainty and fear in the USA.

S&P 500 Daily Chart
Below is the SPX daily chart since August 2009. The chart includes all recent interaction with 1040 beginning in late August 2009. The chart also includes the next support, noted above, in early and mid August 2009. A monthly chart is included at the bottom of this page for a broader perspective and a complete history of the SPX interaction with 1040.

Noteworthy Closing Prices on Daily Chart below
Current Close 1030.71 (Yellow horizontal line)
2010 YTD High 4-23-10 1217.28
2010 YTD Low 6-30-10 1030.71
YE 12-31-09 1115.10
10 Month EMA 1080.82

S&P 500: Line in the Sand at 1040 Breaks Down

Higher Uptrend Line
The higher 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 of 1056.74 was the bottom of the first 2010 pullback, before this current plunge and new 2010 YTD lows. SPX broke through this uptrend line on May 13 and has been below for 34 consecutive trading days. I have left this uptrend line intact to observe when SPX can ultimately regain this previous rate of price ascent.

Lower Uptrend Line
The lower yellow uptrend line, a rate of price ascent, is from the March 9, 2009 closing low of 676.53 up through the previous 2010 YTD closing low of 1050.47 set on June 7. SPX subsequently rallied enough to stay above this trendline for 15 trading days, although SPX almost pinned the trendline on June 25, before breaking down through on June 29.

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 since.

S&P 500 Monthly Chart: The History of 1040

Below is the monthly SPX chart showing the history of the 1040 price. The S&P 500 first reached, and surpassed, the 1040 price in February 1998. SPX then dropped below in September 1998 only to regain 1040 in October 1998. It would be September 2001 before SPX dropped below 1040 again, regain, and then finally drop below in June 2002 during the Dot Com Bust. In October 2003 SPX regained 1040 until dropping below again in October 2008 during the financial crisis.

In September, October, November 2009 the SPX tested and finally prevailed again above 1040. Now, on June 30, 2010 the S&P 500 is yet again below 1040. The overall analysis and commentary are the same as for the daily chart above. The yellow horizontal line, the current closing price, plus the yellow downtrend and uptrend lines are the same, and as described, on the daily chart above. The white moving average line is the 10 month exponential moving average, which is the long-term bull or bear market signal.

We have no position in SPX or any related ETF.

Follow MatrixMarkets On Twitter!


No comments:

Post a Comment

Seeking Alpha