Friday, October 1, 2010

S&P 500 in Narrow Trading Range (Charts) *Waiting for Earnings Season*

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Bears Stop Rally This Week: S&P 500 Flat, Down -0.21%

S&P 500 Overview

S&P 500 The S&P 500 was flat for  the week, closing down -2.43 and -0.21% for the week at 1146.24 on Friday, October 1, 2010. The S&P 500, SPX, was up +91.87 and +8.76% for September, is up +2.79% for the year, and is up +69.43% since the March 9, 2009 market bottom. SPX is down -71.04 and -5.84% from the April 23, 2010 YTD closing high of 1217.28. The SPX continues above the summer trading range that began on May 18 and was negated on September 17. The S&P 500 has now has closed above the 200 day moving average since Monday, September 13 - for 15 consecutive trading days.

Death Crosses and Reversal 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 which is still in effect. The 100d sma descended below the 200d sma on August 24 signalling yet another Death Cross which is also still in effect. 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.

Volatility The VIX closed Friday, October 1 at 22.50, near the recent lows and below the 25, 50, 100, and 200 day simple moving averages. 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 up +3.68% for the week, was down -2.35 and -9.0% for September (inversely comparable to the SPX), is up a +3.83% for the year, and down -54.69% since the March 9, 2009 market bottom. The VIX is down -50.84% from the 2010 YTD closing high of 45.79 on May 20. This is about when the SPX sideways, range-bound trading began for the summer.

The Big Question What happens now? Up, Down, Sideways? The S&P 500 rallied in September, finally rallied above the summer  trading range, and is now above this range. However, an equilibrium seems to have been reached this week with no strongly positive economic data and the imminent beginning of earnings season. With hopefully positive earnings reports coming this month, the bias is now upside driven by earnings. The equities markets may well continue "melting up", barring serious negative economic data. 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.

Economic and Market News Information about the USA and world economies is posted at Boom Doom Economy.

S&P 500 in Narrow Trading Range

S&P 500 Daily Chart Below is the SPX daily chart since late December 2009 to illustrate the summer trading range, the current narrow trading range, and current resistance. A monthly chart is included at the bottom of this page for a broader perspective.

Noteworthy Closing Prices on Daily Chart Below
Current Close: 1146.24
2010 YTD High, April 23: 1217.28
2010 YTD Low, July 2: 1022.58
YE December 31, 2009: 1115.10

Trading Ranges
Current Trading Range
Resistance: January 19, 2010 close 1050.23 (highest yellow horizontal line on daily chart below)
First Support: June 21, 2010 intraday high 1131.23 (second highest horizontal line on daily chart below)
Second Support: August 9, 2010 close 1127.79 (third highest horizontal line on daily chart below)
The S&P 500 is currently in a narrow trading range and has not been able to breakout above the January 2010 peak prior to earnings season. This 1050 area is current resistance. The top of the summer trading range,  previously resistance, has now become support for the current trading range. This 1127-1131 area is current support.
Prior Trading Range
The S&P broke down to begin a summer trading range on May 18. The highest closing price subsequently had been (until this past  week) 1127.79 on August 9 (the third highest yellow horizontal line on the daily chart below) and the highest intraday price had been 1131.23 on June 21 (the second highest yellow horizontal  line on the daily chart below). The SPX rose above September 20 and has remained above now since September 24 - six consecutive trading days. The lowest closing price subsequently has been 1022.58 on July 2 (the lowest yellow horizontal line on the daily chart below) and the lowest intraday price since has been 1010.91 on July 1. With this decisive move upwards on September 24, it appears the top of the trading range (1127-1131) is now support and the trading range has been negated.

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 Monday, September 27. That is, the 25d sma is greater than the 50d sma. The relationship between these two moving averages is a lagging indicator, is mostly bullish as both sma's are ascending,  and is just catching up with the September Rally.

Resistance Because the SPX is below the YTD highs, there are multiple levels of resistance above. SPX has not been able to breakout above current resistance - the peak closing of 1150.23 on January 9, 2010 (highest yellow horizontal line on daily chart above). This resistance was pinned through on Thursday and Friday, September 30 and October 1, but SPX closed below on both days. Next resistance above is the sub-peak closing of 1171.67 on May 12. It will require both positive earnings reports and positive economic data to push SPX above 1150, onwards to 1170, and ultimately to the 2010 YTD closing high of 1217.28..

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 intraday price of 1131.23 on June 21 (second highest yellow horizontal  line on the daily chart above).and the closing price of 1127.79 on August 9 (third highest horizontal line on daily chart below). The rally continues if SPX holds above these two prices, of course. The 200 day simple moving average (1118.03) was regained on September 13, and is now 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 steeply, regained the 50d and 100d sma's, and should regain the 200d sma soon. The 50d sma is now ascending, regained the 100d on September 22, and should regain 200d sma. The 100d sma is beginning to level off but continues 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 22 consecutive trading days.

Higher Downtrend Line The (much) higher yellow downtrend line, a measure of the rate of price descent, is a long-term trendline 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 continues below this downtrend line since setting the YTD high on April 23, but did pin upwards though on Thursday, September 30 for the first time..

Lower Downtrend Line The lower yellow downtrend line, a measure of the rate of price descent, is a short-term trendline 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 in August and September along this trendline. SPX rallied above this trendline on September 9 and now has stayed above for 17 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 = 63.75 is reasonable 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 = 65.97 is reasonable and above the May 25 YTD low of 34.09. The YTD peak was 84.25 on April 5. Both the RSI 14-day and 28-day now have upside room due to the recent consolidation trading.

MACD (12,26,9) The MACD = +1.03  and switched to bullish on September 2, after being bearish since August 11. MACD peaked at 6.51 on September 14 and 15 and has been downtrending. 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 1099.93 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 during the summer trading range.

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 just above the top of the summer trading range of 1130 but not above 1050. The intermediate term trend is now bullish and the long term trend is bullish. If a positive earnings season and  lack of too negative of economic data  occurs, the S&P 500 should jump above 1150 and test 1170. 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 1146.24 is currently above the 10m ema of 1099.93 which signals a long-term bull market.

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