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Mixed Economic Data Keeps Bulls and Bears Each Having Their Week
S&P 500 There was enough positive economic news, or at least not-as-bad-as-expected economic news, this past week for the bulls, the buyers, to step in and rally the USA equity markets this week. It also appears the stock market was due for an oversold bounce upwards and the news generated the pent-up rally. See Related Articles at bottom of this page. The S&P 500 closed at an encouraging 1104.51 on Friday, September 3, 2010. The S&P 500, SPX, is up +3.75% for the week, up +5.26% for the month, down -0.95% for the year, and up +63.26% since the March 9, 2009 market bottom. In addition, SPX is down -9.26% from the April 23, 2010 YTD closing high of 1217.28. The SPX has basically traded sideways since late May, is still within this trading range, and has a downside bias.
Death Crosses The S&P 500 has now has closed below the 200 day moving average since August 11; that's 18 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. Although lagging indicators, this shows the price weakness of the SPX since the April 23 YTD peak.
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, 100d, 200d sma; Bull 8-5-10; Bull September 2010, -9.26%
Russell 2000 Above 50d sma; Below 100d, 200d sma; Bear 9-1-10, Bull September 2010, -13.28%
NASDAQ Composite Above 50d sma; Below 100d, 200d sma; Bull 8-9-10; Bull September 2010, -11.71%
NASDAQ 100 Above 50d, 200d sma; Below 100d sma; Bull 8-6-10; Bull September 2010, -9.00%
Dow Jones Industrial Average 30 Above 50d, 100d sma; Just Below 200d sma; Bull 7-30.10; Bear August 2010, -6.76%
The DJIA is -6.76% below the YTD closing high while the Russell 2000 is -13.28%, which indicates big cap stocks have been performing better - or at least holding their value better - than small and mid cap stocks. The DJIA almost regained the 200 day simple moving average on Friday, September 3 with a close of 10,447.93 compared to the 200d sma of 10,451.22.
Currencies 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 +1.06% to almost $1.29. The US Dollar Index, USDX, has pulled back from the 2010 YTD closing high of 88.51 on June 7 to close this week at 82.04, down -1.03% for the week at 82.04. The US Dollar/Japanese Yen, USDJPY, set another multi year low of 84.1520 on September 1, down -1.08%. 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 mixed USA economic data has become a variable. The three key currencies affecting the markets right now:US Dollar Index Below 50d, 100d sma, Above 200d sma; Bear 7-13-10, Bear September 2010
Euro/US Dollar Below 200d sma; Above 50d, 100d sma; Bear 9-1-10; Bear December 2009
US Dollar/Japanese Yen Below 50d, 100d, 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 (USA Q2 GDP Revised Downward to 1.6%) is here, which shows a downward trend. A review and chart of the ECRI Weekly Leading Index (USA Weekly Leading Index Dips To 6-Week Low "No re-acceleration of growth on the horizon") which shows bottom bouncing is here. A review and chart of The Conference Board monthly Leading Economic Index (USA Monthly Leading Economic Index: Double Dip Recession or Bottom Bouncing?) is here. Whether the USA GDP, WLI, and LEI have bottomed, will begin recovery, or continue downwards represents the "unusually uncertain" economic outlook that FRB Chairman Bernanke was talking about (Fed Chair Bernanke: Moderate Recovery, Outlook "Unusually Uncertain") and is reviewed here. The IMF issued a partial update of their semi-annual World Economic Outlook as of June 30 (IMF Update: Global Recovery Continues) which is reviewed here. In summary, the IMF sees the world economic recovery continuing. However, it does appear a second half 2010 slowdown is in progress for the world and the USA.
Volatility The VIX closed Friday, September 3 at 21.31, the lowest close since May 3 at 20.19. 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 -12.84% for the week, down -18.20% for the month, down -1.71% for the year, and down -57.11% since the March 9, 2009 market bottom. In addition, the VIX is down -53.46% 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? Even though there was a rally this past week, I still maintain the short-term, and probably intermediate-term, outlook for the S&P 500 is ongoing sideways trading with a downside bias. A look at the trading range is below in the SPX daily chart commentary.
S&P 500 Rallies Above 50 Day Moving Average
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 has 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 1104.51
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 1082.97
Trading Range The S&P broke down to begin a trading range on May 18. The highest intraday price subsequently has been 1131.23 on June 21 (the highest yellow horizontal line on the daily chart below). The lowest intraday price since has been 1010.91 on July 1 (the lowest yellow horizontal line on the daily chart below). Based on these parameters, the SPX is now reaching the higher end of the trading range at 1104.51. Tremendous support was shown August 24-31 before the market rallied above and this area could be argued as the "new bottom" of the trading range. This would be in the 1040s and is, of course, key support the next time tested.
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 Because the SPX is well below the YTD highs, there are multiple levels of resistance above. The 100 day simple moving average (1106.27) proved to be key resistance in early August and the SPX closed just below on September 3 at 1104.51. The 50 day sma (1081.89) is a significant benchmark the SPX regained on September 2 and has held above for 2 days now. The SPX could not sustain a breakout above the 50 day sma during a test on August 12-19. The 1100 area, a benchmark and milestone price, was regained on September 3. The question is whether the SPX can hold above the 50d sma and 1100 area and now regain the 100 day simple moving average just above. The 200 day simple moving average (1115.62) has proven to be resistance and the SPX has been below for 18 consecutive trading days. SPX broke down through the 200d sma on May 20, 2010 and sideways trading has ensued. The next significant price is the August 9 closing peak of 1127.79.
Support Because the SPX is above the YTD lows, there are multiple levels of support below. The recent closing lows in the 1040s are now important support. 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 key support. Both of these prices are key benchmarks and psychological prices for support.
Moving Averages SPX had plunged through the 25d, 50d, 100d, and 200d simple moving averages in August, is now above the 25d and 50d sma's, and below the 100d and 200d sma's. The 25d sma is leveling off after descending and below the 100d and 200d sma's. The 50d sma has turned upwards but 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 continues descending and crossed below the 200d sma on August 24, a Death Cross. The 200d sma is slightly descending. SPX dropping continuing below the 100d and 200d sma's with no definitive breakout above (yet) the 50d is 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 began testing this uptrend line on August 24 but rallied above on September 1.
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, but on September 3 pinned it and closed just below.
Relative Strength Index (RSI)
RSI 14 day = 57.99 is reasonable and well above the July 6 YTD and multi-year abysmal low of 10.40
RSI 28 day = 48.25 is leaning oversold and above the May 25 YTD low of 34.09
The RSI's are off the lows and indicate some upside potential although an oversold dip is now possible.
MACD (12,26,9) The MACD switched to bullish on September 2, after being bearish since August 11. MACD continues up trending 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 1082.97 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 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 leaning bullish. Overall, the short-term trend, and probably the intermediate-term trend, appears to be ongoing sideways, range-bound 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 continue 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 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 is currently just above the 10m ema which signals a long-term bear market.
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We have no position in SPX or any related ETF.
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