Sunday, June 27, 2010

S&P 500: Back Below the 200 Day Average, Death Cross Arrives


New York Stock Exchange

SPX has been below the 200 day moving average for 4 consecutive days and the 50 day simple moving average descended below the 100 day sma on Wednesday, June 23 - a Death Cross. The S&P 500, SPX, is down -3.65% for the week, down -1.16% for the month, down -3.44% for the year, and up +59.16% since the March 9, 2009 market bottom. In addition, SPX is down -11.54% from the April 23, 2010 YTD closing high of 1217.28. The Euro, via the Euro/US Dollar price, EURUSD, was steady for the week at -0.10%. The US Dollar Index, USDX, has pulled back from the 2010 YTD high of 88.51 at the Monday, June 7 close to 85.28.

The Euro holding steady at least should keep the SPX somewhat steady. Some disappointing USA economic data, such as the May durable goods orders, continued high weekly jobless claims, dismal housing starts in May, and the May jobs report, perpetuates the uncertainty as to the viability of the USA economic recovery. On top of this add the EU Crisis and suspicion about the fairness of the markets (Flash Crash May 6). These factors have created a bearish combination. The Euro had 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. Howevere, now the uncertainty over the USA economic recovery has become a variable. Suspiciion, uncertainty, and sudden onsets of fear permeate the equity markets.

Economic and Market News
A review and weekly update of USA and World market and economic news and fundamental analysis is here. Sentiment is "cautiously optimistic" about the global recovery. Asia-Pacific is the most robust economic region while there is uncertainty about Europe's sovereign debt, financial system, and economic recovery. USA leading economic indicators are signalling the recovery is slowing down, perhaps even stalling. USA unemployment and underemployment remains high, bank lending continues to contract, housing starts have plunged, durable goods orders are down, and the Q1 GDP was unexpectedly revised downwards. Yet USA manufacturing shows surprising strength and sustainability.

The Big Question What happens now? Up, Down, Sideways?
We have several major market issues and variables. Overall, I continue to foresee more sideways trading and possible high volatility, with a downside bias until some of this market turmoil settles down. By market turmoil, I mean the EU Crisis primarily and now uncertainty about the strength, even the viability of the USA economic recovery secondarily. Only then will the bottom, and therefore support, be in. Commentary on the major market issues are here. Volatility has been high since the VIX put in a bottom in mid-April. The VIX topped out at a YTD closing high of 45.79 on May 20. VIX is now at a calmer 28.53, but this is still up +19% for the week. However, hopefully this signals no huge SPX drops, barring more bad news out of Europe or dismal USA economic data.

Major USA Equity Indexes
The Russell 2000, NASDAQ Composite, NASDAQ 100, S&P 500, and Dow Jones Industrial Average 30 have all fallen below the 2010 YTD highs. The bullish trends are broken. For comparative purposes, the current price status, intermediate-term and long-term trends, dates generated, and the percentage off the 2010 YTD high are:
S&P 500 Below 200d sma; Bear 5-20-10; Bear June 2010, -11.54%
Russell 2000 Above 100d sma; Bear 5-26-10, Bull July 2009, -13.05%
NASDAQ Composite Below 200d sma; Bear 5-21-10; Bull May 2009, -12.12%
NASDAQ 100 Above 200d sma (barely); Bear 5-21-10; Bull April 2009, -10.55%
Dow Jones Industrial Average Below 200d sma; Bear 5-20.10; Bear June 2010, -9.47%
Currencies The two key currencies affecting the markets right now:
US Dollar Index Below 25d sma; Bull 12-21-09, Bull January 2010
Euro/US Dollar Above 25d sma; Bear 12-15-09; Bear December 2009

S&P 500: Back Below 200 Day SMA, a Death Cross Arrives

S&P 500 Daily Chart Below is the SPX daily chart for 2010. A monthly chart is included at the bottom of this page for a broader perspective.

Noteworthy Closing Prices on Daily Chart below:
Current Close 1076.76 (Yellow horizontal line)
2010 YTD High 4-23-10 1217.28
2010 YTD Low 6-7-10 1050.47
YE 12-31-09 1115.10
10 Month EMA 1089.19

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 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 be resistance and the SPX has been below for 4 consecutive trading days. This was after staying above for 5 days, and previously below for 17 consecutive trading days. The 1100 area, a benchmark and milestone price is resistance. The now distant 1150 area is the next significant benchmark resistance. There was a struggle at 1150, and failure to break above, in January 2010. The 1200 area, a benchmark and milestone price, is significant, and still far away, resistance. SPX is now just above the September 2009 peaking action.

Support There are multiple levels of support below. The 200d sma had been support that failed. The 2010 YTD closing low was set on June 7 at 1050.47 is absolutely critical support. The new YTD closing low on June 7 broke through the previous YTD closing low of 1056.74 on February 8. Both of these prices are key benchmarks and psychological prices for support.

Moving Averages SPX has recently plunged through the 25d, 50d, 100d, and 200d simple moving averages and remains below. The 25d sma continues to descend and is below the 50d, 100d, and 200d sma's. The 50d sma is plunging and crossed below the 100d sma on June 23, a Death Cross. The 50d is now descending towards the 200d. The 100d sma has leveled off.and the the 200d sma is beginning to ascend. SPX dropping below the 200d is disappointing. The 200d sma was last tested in early July 2009, a rally ensued.

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 low. SPX broke through this uptrend line on May 13 and has been below for 31 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 new 2010 YTD closing low of 1050.47 set on June 7. SPX subsequently rallied enough to stay above this trendline for the last 14 trading days, although SPX almost pinned the trendline on June 25..

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.

Relative Strength Index (RSI)
RSI 14 day = 59.98 is reasonable and well above the recent May 7 low of 28.96
RSI 28 day = 42.20 is leaning oversold and above the May 25 YTD low of 34.09
The RSI 14 day is reasonable while the 28 day is leaning oversold, indicating plenty of upside potential.

MACD (12,26,9) The MACD switched to bullish on June 10, but is now downtrending. MACD had plunged to -11.44 on May 7, the lowest reading since the October 2008 panic! MACD had been flipping back and forth around the 0.00 (neutral) line, indicating the uncertainty in the markets. MACD peaked on June 18 at the highest since the rally off the bottom in March 2009!

Long-Term Trend The 10 month exponential moving average of 1089.19 is a long-term trend indicator and shown on the monthly chart below. That is the line in the sand, so to speak, for the long term signal of a bear market. SPX is now below this signal, after briefly regaining the 10m ema last week. SPX initially dropped below this signal in late May, indicating long-term bear market has arrived.

Conclusion Uncertainty over the continuation of the USA economic recovery and the Euro Crisis has caused the markets to remain in turmoil with a downside bias. The intermediate term trend continues bearish and the long term trend is now signalling bearish. The technical indicators such as resistance, support, trendlines, RSIs, and MACD had been pushed to extremes in the last weeks as a result of Fear but are now reaching more reasonable levels. The Bears have been in control, but the Bulls continue to have at least a glimmer of hope as the Euro has rallied and remains steady.

S&P 500 Monthly Chart

Below is the monthly SPX chart since January 2005. The overall analysis and commentary are the same as for the daily chart above. The yellow horizontal line, the current 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, as discussed above with the daily chart.

We have no position in SPX or any related ETF.

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