Sunday, September 26, 2010

S&P 500 Gains for 4th Consecutive Week! (Charts) *Above summer trading range*

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Bulls Continue Rally from the July 2 Bottom! S&P 500 Gains for 4th Consecutive Week!

Markets Overview

S&P 500 The S&P 500 closed up +23.08 and +2.05% for the week at 1148.67 on Friday, September 24, 2010. The S&P 500, SPX, is up +9.47% for the month, up +3.01% for the year, and up +69.79% since the March 9, 2009 market bottom. SPX is down -5.64% from the April 23, 2010 YTD closing high of 1217.28. The SPX is now above the trading range that began on May 18.

Death Crosses and Reversal The S&P 500 has now has closed above the 200 day moving average since Monday, September 13 - for 10 consecutive trading days. The 50 day simple moving average descended below the 100 day sma on June 23 - a Death Cross - but regained the 100d sma on Wednesday, September 22. Therefore, this Death Cross has been negated. The 50d sma 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. Although lagging indicators, the remaining two Death Crosses, the 50d below the 200d and the 100d below the 200d show the price weakness of the SPX since the April 23 YTD peak.

Major USA Equity Indexes The equity indexes were all up this week with the NASDAQ 100 leading the way, up +3.48%, powered by Apple. The Russell 2000, NASDAQ Composite, NASDAQ 100, S&P 500, Dow Jones Industrial Average, and Dow Jones Transportation Average are all still below their 2010 YTD highs. The bullish trends had been broken but are being mended by this September Rally: key resistance is being tested which, if decisively regained, would signal an upside breakout. For comparative purposes, the moving average status, intermediate-term and long-term trends, dates generated, and the percentage below the 2010 YTD high are:
S&P 500 Above 25d, 50d, 100d, 200d sma; Bear 9-10-10; Bull September 2010, -5.64%
Russell 2000 Above 25d, 50d, 100d, 200d sma; Bear 9-1-10, Bull September 2010, -9.56%
NASDAQ Composite Above 25d, 50d, 100d, 200d sma; Bear 9-7-10; Bull September 2010, -5.89%
NASDAQ 100 Above 25d, 50d, 100d, 200d sma; Bear 9-10-10; Bull September 2010, -1.53%
Dow Jones Industrial Avg Above 25d, 50d, 100d, 200d sma; Bear 9-13-10; Bull September 2010, -3.08%
Dow Jones Transportation Avg Above 25d, 50d, 100d, 200d sma; Bear 9-14-10; Bull September 2010; -6.05%

The NASDAQ 100, a technology-weighted, non-financial index is now just -1.53% below the YTD high, due to Apple (20% of index) setting an all-time highs this week. The DJIA is -3.08% below the YTD closing high while the Russell 2000 is -9.56%, which indicates big cap stocks have been performing better - or at least holding their value better - than small and mid cap stocks. All of the indexes have now regained and exceeded the 25, 50, 100, and 200 day simple moving averages.

Currencies The Euro, via the Euro/US Dollar price, EURUSD, has rallied above the 2010 YTD low of 1.18971 on June 6, but is down -5.81% for 2010. The US Dollar Index, USDX, has pulled back from the 2010 YTD closing high of 88.51 on June 7, but is only up +1.71% for 2010. The US Dollar/Japanese Yen, USDJPY, set a multi-year closing low of 83.37 on September 7, dipped to 83.398 on September 13, and is down -9.46% for 2010. 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 would go 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 mixed USA economic data has become a variable. The three key currencies affecting the markets right now:
US Dollar Index Below 25d, 50d, 100d, 200d sma; Bull 9-14-10, Bear September 2010
Euro/US Dollar Above 25d, 50d, 100d, 200d sma; Bear 9-1-10; Bull September 2010
US Dollar/Japanese Yen Below 25d, 50d, 100d, 200d sma; Bear 5-20-10; Bear May 2010

Economic and Market News (Links at Bottom of this Page) Economic indicators continue to be mixed - not too good, not too bad. The USA economic recovery continues, just not as strongly as hoped. The Thomson Reuters/University of Michigan's preliminary September Index of Consumer Sentiment declined from 68.9 to 66.6, the lowest since August 2009. Some Federal Reserve districts are reporting a slowdown in manufacturing. The USA Q2 GDP was revised downward by the BEA to 1.6% and the GDP trend has been downward since the peak in Q4 2009. The FOMC also lowered their Q3 and beyond USA GDP projections. The ECRI Weekly Leading Index is still closer to the lows than highs. However, Lakshman Archuthan of ECRI states the WLI and Annualized Growth Rate indicate ""No re-acceleration of growth on the horizon" and "Still premature to predict a new recession", as the WLI and AGR are projecting forward up to 6 months. The Conference Board monthly Leading Economic Index did increase in August. Whether the USA GDP, WLI, and LEI have "bottomed", will begin recovery, or continue downwards represents the "unusually uncertain" economic outlook that FRB Chair Bernanke has stated. The USA unemployment rate edged up to 9.6% in August and and weekly unemployment claims are now at a 3 week high of 465,000.

In addition, FRB Chair Bernanke has also stated the pace of economic recovery has slowed somewhat. The latest Fed Beige Book was mixed, some districts reporting a moderate increase in economic activity while others were flat or slowing down. The IMF issued a partial update of their semi-annual World Economic Outlook as of June 30 and noted the global recovery continues, but some GDP estimates were subdued. A second half 2010 economic slow down in growth is in progress for the world and the USA.

Volatility The VIX closed Friday, September 24 at 21.71, near the recent lows. 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 down -1.36% for the week, down -16.66% for the month, up a mere +0.14% for the year, and down -56.30% since the March 9, 2009 market bottom. The VIX is down -52.59% from the 2010 YTD closing high of 45.79 on May 20. This is about when the SPX sideways, range-bound trading began.

The Big Question What happens now? Up, Down, Sideways? USA equities have rallied in September and rallied above the summer  trading range twice, and are now above this range. The bias is now upside up to the 2010 YTD closing and intraday highs as the next resistance. The equities markets continues "melting up". The economic recovery in the USA and world has slowed, but has not stalled. A look at the trading range is below in the SPX daily chart commentary.

S&P 500 Above Summer Trading Range

S&P 500 Daily Chart Below is the SPX daily chart since the Flash Crash on May 6, 2010, to illustrate the trading range the SPX had been in since about May 20. A monthly chart is included at the bottom of this page for a broader perspective.

Noteworthy Closing Prices on Daily Chart Below
Current Close: 1148.67
2010 YTD High, April 23: 1217.28
2010 YTD Low, July 2: 1022.58
YE December 31, 2009: 1115.10

Trading Range The S&P broke down to begin a trading range on May 18. The highest closing price subsequently had been (until this past  week) 1127.72 on August 9 (the second highest yellow horizontal line on the daily chart below) and the highest intraday price had been (until this past week) 1131.23 on June 21 (the highest yellow horizontal  line on the daily chart below). Therefore, 1130 is a major benchmark price, resistance area, is "in play", and SPX rose above decisively on Friday, September 24. The lowest closing price subsequently has been 1022.58 on July 2 (the lowest yellow horizontal line) and the lowest intraday price since has been 1010.91 on July 1 (the lowest yellow horizontal line on the daily chart below). With this decisive move upwards on September 24, it appears the top of the trading range is now support and the trading range has been negated.

Testing Trading Range Resistance This past two weeks have been fascinating for the S&P 500 from a technical analysis standpoint. Based on the aforementioned trading range parameters, the S&P 500 has reached the higher end of the trading range with the Friday, September 17 close of 1125.59. On Monday, September 13, SPX came within reach of the top of the trading range and resistance. On Tuesday, September 14, the intraday high was 1127.36 - nearly pinning the key 1127.72 resistance. On Wednesday and Thursday, September 15 and 16, the SPX hovered just below resistance. On Friday, September 17, SPX actually pinned upwards through the key 1030 price for an intraday high of 1131.47 before closing below at 1125.59. This was the first time the S&P 500 had been above 1030 since a pin on June 21. On Monday, September 20 the SPX broke out upside decisively above the aforementioned resistance only to pull back, and below, for three days. Then on Friday, September 24 another definitive upside breakout occurred.

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 Friday, September 10. That is, the 50d sma is greater than the 25d sma. An intermediate-term bull market had previously been in effect since August 5. The relationship between these two moving averages is a lagging indicator, is mostly neutral and/or negated in a trading range pattern, have not caught up with the September Rally, and should signal a bull market this next week.

Resistance Because the SPX is below, but ascending towards, the YTD highs, there are multiple levels of resistance above. However, an upside breakout above the trading range resistance, discussed above,  has now occurred twice. Further gains could continue to be explosive and dramatic. Next key price and resistance above is the the peak closing of 1150.23 on January 9, which has not been pinned yet in this September Rally. Next resistance is the sub-peak closing of 1171.67 on May 12.

Support Because the SPX is above the YTD lows, there are multiple levels of support below. The top of the summer trading range is now support and a milestone: the closing price of 1127.72 on August 9 (the second highest yellow horizontal line on the daily chart above) and the intraday price of 1131.23 on June 21 (the highest yellow horizontal  line on the daily chart above). The rally continues if SPX holds above these two prices, of course. The 200 day simple moving average (1117.06) was regained on September 13, and is now recent support. The regained (September 9) descending 100 day simple moving average (1095.43) is lower, key support. The regained (September 2) ascending 50d sma (1098.64) is also benchmark support. The recent closing lows in the 1040s are now important support further below.

Moving Averages SPX had plunged through the 25d, 50d, 100d, and 200d simple moving averages in August, but now has regained all. The 25d sma is now ascending, should regain the 50d soon, regained the 100d on September 24, but is below the 200d sma. The 50d sma is now ascending, regained the 100d on September 22, but continues below the 200d sma. The 100d sma continues descending and is below the 25d, 50d, and 200d sma's. The 200d sma remains above the 25d, 50d, and 100d sma's, has leveled off, and has begun slightly ascending. The Death Crosses and a reversal are discussed at the beginning of this post.

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 began testing this uptrend line on August 24, rallied above on September 1, and now has remained above for 17 consecutive trading days.

Higher Downtrend Line The (much) 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 setting the YTD high.

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. The 100d sma has also trended downwards recently along this trendline. SPX rallied above this trendline on September 9 and now has stayed above for 12 consecutive trading days. This trendline has been negated but is left on the chart temporarily for comparative purposes.

Relative Strength Index (RSI) The RSI 14 day = 70.51 is marginally overbought and well above the July 6 YTD and multi-year abysmal low of 10.40. The peak was on September 20 at 88.58 which was the highest since the 2010 YTD March 17 peak of 99.30. The RSI 28 day = 63.08 is reasonable and above the May 25 YTD low of 34.09. The YTD peak was 84.25 on April 5. The RSI 28 day still has upside room.

MACD (12,26,9) The MACD = +3.60  and switched to bullish on September 2, after being bearish since August 11. MACD peaked at 6.51 on September 14 and 15, began downtrending, but appears to have leveled off. MACD had previously been uptrending since August 26. MACD had plunged to -11.44 on May 7, the lowest reading since the October 2008 panic. MACD peaked at +8.43 on June 18, 2010 at the highest since the rally off the bottom in March 2009.

Long-Term Trend The 10 month exponential moving average of 1091.00 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 above this signal. SPX initially dropped below this signal in late May, indicating long-term bear market had arrived, but 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, or at least the rate of recovery, and previously the Euro Crisis had caused the markets to break the bull market trend that began in March 2009 and peaked in April 2010. The current mixed economic news has just been positive enough to take the SPX back to the top of the summer trading range and now just above. The intermediate term trend is tenuously neutral to bullish and the long term trend is now bullish. Overall, the short-term trend, and probably the intermediate-term trend, appears to be bullish. However, SPX has now tested the top of the trading range and two upside breakouts have occurred. If the latest Friday, September 24 breakout sustains,  there will be an explosive and dramatic jump above the 1150 and even 1170+ area. Above that is the 2010 YTD April 23 closing high of 1217.28.

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 higher and lower yellow horizontal lines are the current trading range discussed above. 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 of 1148.67 is currently above the 10m ema of 1091.00 which signals a long-term bull market.

Related Articles and Links
*Recent Posts by Boom Doom Economy*
USA Weekly Leading Index Dips to 2 Week Low (Charts) *Still premature to predict a new recession*
USA Weekly Unemployment Claims at 3 Week High (Charts) *Total Claims 465,000*
Global Services PMI at 6 Month Low (Chart) *Growing at Slower Rate in August*
USA Consumer Sentiment Drops to 13 Month Low (Chart)
USA Monthly Sales for Retail & Food Services Up +0.4% in August (Chart)
USA Total Consumer Credit Decreases in July (Charts)
USA Non-Manufacturing Index (NMI) Contracts -2.8% in August (Chart)
USA Unemployment Rate Edges Up To 9.6% In August (Charts)
USA Manufacturing PMI Expands in August +0.8% (Chart)
USA Q2 GDP Revised Downward to 1.6% (Chart)
*Recent Posts by Financial Controls*
Bank Failure Friday: FDIC Closes 2 Banks *2010 YTD Total Now 127*
Federal Reserve: Pace of Economic Recovery Likely to be Modest in Near Term (Review)
Fed Beige Book: USA Economic Growth at Modest Pace (Review)
Fed Chair Bernanke: Pace of Economic Recovery Has Slowed Somewhat (Review)
Fed Chair Bernanke: Moderate Recovery, Outlook "Unusually Uncertain" (Review)
FOMC Lowers USA 2010 GDP Projection (Review)

We have no position in SPX or any related ETF.

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