Sunday, August 29, 2010

S&P 500: Another Death Cross Arrives (Charts)


Bears See Slowing Economy, Bulls See Encouraging Earnings

Market Overview

S&P 500
The last post when the S&P 500 was reviewed was for the close on Friday, July 16. The S&P 500 closed at 1064.88. As of this post, for the close on Friday, August 27, the SPX closed at 1064.59. That's a whopping -0.29 decrease that disappears in the rounding! LOL Think of all the stock market discussions on Bloomberg and CNBC, the website and blogger chatter and analysis, the videos posted in the last six weeks! Consider all the economic reviews and forecasts since July 16, the increase in double dip recession chatter, the economic recovery is stalling news, even the sky is falling before our eyes news flashes! What if you followed all these discussions, chatter, reviews, analyses, and the ongoing debates between the bulls and the bears? The net effect on the SPX was zero. I'm purposely and sanely excluding all the political rhetoric, aka BS, generated by both the Democrats and Republicans. Accordingly, I present a conclusion as to the short-term, and probably intermediate-term, outlook for the S&P 500: ongoing sideways trading with a downside bias. So, if that's what you were looking for, there it is. I will now delve deeper into the S&P 500 and some other market plus economic news and action.

The S&P 500, SPX, is down -0.66% for the week, down -3.36% for the month, down -4.53% for the year, and up +57.36% since the March 9, 2009 market bottom. In addition, SPX is down -12.54% from the April 23, 2010 YTD closing high of 1217.28. The SPX has basically traded sideways since late May, with a downside bias.

Death Crosses
The S&P 500 closed the week at 1064.59 and now has closed below the 200 day moving average since August 11; that's 13 consecutive trading days. The 50 day simple moving average descended below the 100 day sma on June 23 - a Death Cross - and then descended below the 200 day sma on July 2 - another Death Cross. The 100d sma descended below  the  200d sma on August 24 signalling yet another Death Cross.

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. The bullish trends are broken. For comparative purposes, the current price status, intermediate-term and long-term trends, dates generated, and the percentage below the 2010 YTD high are:
S&P 500 Below 50d and 200d sma; Bull 8-5-10; Bear June 2010, -12.54%
Russell 2000 Below 50d and 200d sma; Bull 8-10-10, Bear August 2010, -16.87%
NASDAQ Composite Below 50d and 200d sma; Bull 8-9-10; Bear August 2010, -14.88%
NASDAQ 100 Below 50d and 200d sma; Bull 8-6-10; Bear August 2010, -12.83%
Dow Jones Industrial Average 30 Below 50d and 200d sma; Bull 7-30.10; Bear August 2010, -9.41%

The Euro, via the Euro/US Dollar price, EURUSD, has rallied above the 2010 YTD low of 1.18971 on June 6, closing this week +0.41% to over $1.27. The US Dollar Index, USDX, has pulled back from the 2010 YTD high of 88.51 at the Monday, June 7 close to 82.89, down -0.19% for the week at 82.89. The US Dollar/Japanese Yen, USDJPY, set a multi year low of 84.3870 on August 24. There has been some disconnect between the Euro, US Dollar, and S&P 500. 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. However, now the uncertainty over the viability of the USA economic recovery and a mixed earnings season has become a variable.

The three key currencies affecting the markets right now:
US Dollar Index Above 200d sma; Below 50d sma; Bear 7-13-10, Bull August 2010
Euro/US Dollar Below 50d and 200d sma; Bull 7-6-10; Bear December 2009
US Dollar/Japanese Yen Below 50d and 200d sma; Bear 5-20-10; Bear May 2010

Economic and Market News
A review and chart of the USA quarterly GDP as reported by the BEA is here, which shows a downward trend. A review and chart of the ECRI Weekly Leading Index for the USA shows bottom bouncing and is here. Whether the USA GDP and WLI have bottomed, will  begin recovery, or continue downwards represents the "unusually uncertain" economic outlook that FRB Chairman Bernanke was talking about. The IMF issued a partial update of their semi-annual World Economic Outlook as of June 30 which is reviewed here. The full semiannual World Economic Outlook issued in April is reviewed here. In summary, the IMF sees the world economic recovery continuing. Sentiment is "cautiously optimistic" perhaps leaning to "extremely cautious optimism" about the global recovery but it appears a second half 2010 slowdown is in progress for the world and the USA.

Volatility had been high since the VIX put in a triple bottom in mid-April with the 2010 YTD closing low of 15.58 on April 12. The VIX topped out at a YTD closing high of 45.79 on May 20. VIX is now at a calmer, more reasonable 24.45 and is down -4.08% for the week.

The Big Question What happens now? Up, Down, Sideways?
As noted at the beginning of this blog post, "Accordingly, I present a conclusion as to the short-term, and probably intermediate-term, outlook for the S&P 500: ongoing sideways trading with a downside bias. So, if that's what you were looking for, there it is."

S&P 500: Another 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 1064.59 (Yellow horizontal line)
2010 YTD High 4-23-10 1217.28
2010 YTD Low 7-2-10 1022.58
YE 12-31-09 1115.10
10 Month EMA 1080.96

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signaled a bull market for the SPX on August 5. That is, the 25d sma is greater than the 50d sma. An intermediate-term bear market had previously been in effect since May 20.

Resistance There are multiple levels of resistance above. The 100 day simple moving average (1112.39) proved to be key resistance in early August. The SPX could  not sustain a breakout above the 50 day sma during a test on August  12-19. The 50 day sma (1084.26) is a significant benchmark the SPX needs to regain. The current close, the yellow horizontal line, has pulled back dramatically from the April 23 YTD closing high of 1217.28. The 1100 area, a benchmark and milestone price, is the next significant and important resistance. The 200 day simple moving average (1116.24) has proven to be resistance and the SPX has been below for 13 consecutive trading days. SPX broke down through the 200d sma on May 20, 2010 and sideways trading has ensued.

Support There are multiple levels of support below. The recent closing low of 1047.22 on August 26 is recent support. The 200d sma had been support that failed. The 2010 YTD closing low was set on July 2 at 1022.58 is absolutely critical support. The previous 2010 YTD closing lows of 1050.47 and 1056.74 on June 7 and February 8, respectively, are important support. Both of these prices are key benchmarks and psychological prices for support.

Moving Averages SPX has plunged through the 25d, 50d, 100d, and 200d simple moving averages and is now once again below. the 25d sma. The 25d sma is descending and 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, and below the 200d sma on July 2, another Death Cross. The 100d sma is descending and crossed below the 200d sma  on August 24. The 200d sma is slightly descending. SPX dropping below the 200d and failing to hold the 50d is very bearish.

Uptrend Line The yellow uptrend line, a rate of price ascent, is from the March 9, 2009 closing low of 676.53 up through the current 2010 YTD closing low of 1022.53 set on July 2. SPX was below on August 24-26 but rallied above on August 27.

Higher Downtrend Line The higher yellow 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.

Lower Downtrend Line The lower yellow downtrend line, a measure of the rate of price descent, is from the April 23, 2010 YTD closing high of 1217.28 down through the recent August 9 closing high of 1127.79. SPX has remained below this downtrend line since.

Relative Strength Index (RSI)
RSI 14 day = 26.54 remains oversold and well above the July 6 YTD and multi-year abysmal low of 10.40
RSI 28 day = 46.31 is leaning oversold and above the May 25 YTD low of 34.09
The RSI's are off the lows and indicate plenty of upside potential for an additional oversold bounce.

MACD (12,26,9) The MACD switched to bearish on August 11 but is now up trending. MACD had plunged to -11.44 on May 7, the lowest reading since the October 2008 panic. 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 1080.96 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 below this signal. SPX initially dropped below this signal in late May, indicating long-term bear market had arrived and has regained and lost the indicator several times which indicates uncertainty and lack of trend.

Conclusion Uncertainty over the continuation of the USA economic recovery and previously the Euro Crisis have caused the markets to break the bull market trend that began in March 2009 and peaked in April 2010. The intermediate term trend is tenuously bullish and the long term trend is neutral to bearish. Overall, the short-term trend, and probably the intermediate-term trend, appears to be ongoing sideways trading with a downside bias. The technical indicators such as resistance, support, trendlines, RSIs, and MACD have been pushed to extremes since the April 23 YTD peak close of 1217.28. The moving  averages are dismally bearish.

S&P 500 Monthly Chart

Below is the SPX monthly 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. SPX is currently below the 10m ema which signals a long-term bear market.

USA Q2 GDP Revised Downward to 1.6% (Chart) BoomDoomEconomy
USA Economic Weekly Leading Index: Double Dip Recession or Bottom Bouncing? (Chart) BoomDoomEconomy

We have no position in SPX or any related ETF.

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