Sunday, June 13, 2010

S&P 500: Bears Still in Control


New York Stock Exchange

The S&P 500, SPX, is up +2.51% for the week, barely up +0.20% for the month, down -2.11% for the year, and up +61.35% since the March 9, 2009 market bottom. In  addition, SPX is down -10.32% from the April 23, 2010 YTD closing high of 1217.28.  The Euro, via the Euro/US Dollar price, EURUSD, rallied this week to 1.21106, after breaking down through 1.20 at the Friday, June 4 close. This has resulted in the US Dollar Index, USDX, pulling back from the 2010 YTD high of 88.51 at the Monday, June 7 close.  The bears are still in control, especially if any further sovereign debt crisis comes out of Europe which would kill the Euro rally and push the SPX downwards again.

The Euro rally is bullish for the SPX. The disappointing USA May jobs report has led to uncertainty as to the viability of the USA economic recovery, on top of the EU Crisis and suspicion about the fairness of the markets (Flash Crash May 6).  These factors have created a bearish 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, and frustrating, during such a period of suspicion, uncertainty, and sudden onsets of fear.

Economic and Market News
A review and weekly update of USA and World market and economic news and fundamental analysis is in the previous post. Overall, the USA and global economic data remains cautiously optimistic.

The Big Question What happens now? Up, Down, Sideways?
We have several major market issues and variables.  Overall, I foresee more sideways trading and 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 in the previous post. 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 much calmer 28.79 which is well below the recent 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 highs, of course.  The bullish trends are broken.  For comparative purposes, the current price status, intermediate-term and long-term trends, date generated, and the percentage off the 2010 YTD high are:
S&P 500 Below 200d sma; Bear 5-20-10; Bear May 2010, -10.32%
Russell 2000 Below 100d sma; Bear 5-26-10, Bull July 2009, -12.52%
NASDAQ Composite Below 100d sma; Bear 5-21-10; Bull May 2009, -11.33%
NASDAQ 100 Below 100d sma; Bear 5-21-10; Bull April 2009, -10.13%
Dow Jones Industrial Average Below 200d sma; Bull June 2010; Bear May 2010, -8.87%

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: Bears Still in Control

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 1091.60 (Yellow horizontal line)
2010 YTD High 4-23-10 1217.28
YE 12-31-09 1115.10
10 Month EMA 1091.89

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, 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 SPX has stayed below for sixteen consecutive trading days.  The 1100 area, a benchmark and milestone price is above. The 1150 area is also significant resistance. The 1200 area, a benchmark and milestone price, is significant, and now far away, resistance. SPX is below the October 2009 peaks.

Support There are multiple levels of support below. Breaking down through the 200d sma support on May 20 has proven to be a milestone. Buyers appear to have stepped in and support has been found after the 2010 YTD closing low was set on June 7 at 1050.47. This new low broke through the previous YTD closing low of 1056.74 on February 8. Both of these prices are key benchmarks and psychological prices.

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, 100d, and 200d sma's.  The 50d sma decreasing but has not yet reached the 100d or 200d sma's.  The 100d sma is descending and the 200d sma is leveling off. The 200d sma was absolutely critical support and has been broken through.  At least regaining the 200d would be encouraging. 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 21 consecutive trading days.  I have left this uptrend line intact to observe when SPX can ultimately regain this 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 4 trading days.

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 = 50.86 is reasonable and well above the February 8 YTD low of 23.92
RSI 28 day = 39.04 is marginally oversold and above the May 25 YTD low of 34.09
The RSI 14 day is reasonable while the 28 day is marginally oversold.

MACD (12,26,9) The MACD switched to bullish on June 10. MACD had plunged to -11.44 on May 7, the lowest reading since the October 2008 panic!  MACD is flipping back and forth around the 0.00 (neutral) line, indicating the uncertainty in the markets.

Long-Term Trend The 10 month exponential moving average of 1091.89 is a long-term trend indicator.  That is the line in the sand, so to speak, for the long term signal of a bear market. SPX is now at this signal, which is a neutral stance. SPX dropped below this signal in late May, indicating long-term bear market has arrived. If SPX can regain and hold above the 10m ema, this would signal a bull market has begun.

Conclusion Uncertainty over the continuation of  the USA economic recovery and the Euro Crisis has caused 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 had been pushed to extremes as a result of Fear but are not reaching more reasonable levels.  The Bears have been in control, but the Bulls at least now have a glimmer of hope as the Euro has rallied.

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 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.

Disclosure We have no position in SPX or any related ETF.


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