Friday, October 29, 2010

S&P 500 Rally at Resistance (Charts) *Weekly gain just +0.18, +0.02%*

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S&P 500 up only +0.20 for the week, Bears may want a recount!
Bulls up 4 consecutive weeks, 8 of last 9

S&P 500 Overview

S&P 500 The S&P 500 posted a scant gain this week, closing up a mere +0.18 and +0.20% for the week at 1183.26 on Friday, October 29, 2010. The S&P 500, SPX, is up +42.06 and +3.69% for October, is up +6.11% for the year, and is up +74.90% since the March 9, 2009 market bottom. SPX is down -34.02 and -2.79% from the April 23, 2010 YTD closing high of 1217.28. The SPX is now well 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 35 consecutive trading days.

Another Death Cross 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 - but regained the 200d sma on Friday, October 22. Therefore this Death Cross has been negated. The 100d sma descended below the 200d sma on August 24 signalling yet another Death Cross which is still in effect. Although lagging indicators, the remaining Death Cross, the 100d below the 200d, shows the price weakness of the SPX in the pullback after the April 23 YTD peak.

Volatility The VIX closed Friday, October 29 at 21.20, bouncing up from  the October lows, and regaining the 25 day simple moving average this week for the first time since since October 4. The VIX continues below the 50, 100, and 200 day simple moving averages. VIX is up +12.89% for the week, down -10.55% for October (more than the SPX is up), down -2.21% for the year (more than the SPX is up), and down -57.33% since the March 9, 2009 market bottom. The VIX is down -53.70% 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 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.

The Big Question What happens now? Up, Down, Sideways? The S&P 500 rallied in September, finally rallied above the summer  trading range, and the rally continued into October. However, the recent weekly gains of the SPX, reverse chronological order, have been +0.02%, +0.59%, +0.95%, and +1.65%. The last 4 weeks gains have been small and consistently decreasing each week, as if the rally was grinding to a halt! Economic data continues mixed, but there is no confirmation the USA economy has stalled, just growing at a very, very slow rate that is not sufficient to bring down the unemployment rate significantly. Earnings reports have been good to provide some upward market momentum, but earnings season is almost over. The equities markets may well continue "melting up", i.e.. very slowly, barring serious negative economic data, as earnings season ends. Therefore, there is an upside bias through earnings season and most likely a neutral to downside bias afterwards. Earnings, and economic news, have yet to drive the SPX up to test the YTD high of 1217.28. The economic recovery in the USA and world has slowed, but has not stalled.

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

S&P 500 Rally at Resistance: weekly gain just +0.18, +.02%

S&P 500 Daily Chart Below is the SPX daily chart for just October 2010 to illustrate current resistance and support. Last week's daily chart was longer-term and illustrated where the continuing resistance and support originated. Current resistance and support is from April and May. A monthly chart is included at the bottom of this page for a broader perspective.

Noteworthy Closing Prices on Daily Chart Below
Current Close: 1183.26
2010 YTD High, April 23: 1217.28
2010 YTD Low, July 2: 1022.58
YE December 31, 2009: 1115.10

* The 100 and 200 day simple moving averages and the uptrend line are not shown on the daily chart this week *

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 now bullish, both sma's are ascending, and has caught up with the September (+8.8%) and October (+3.7%) rally.

Resistance Because the SPX is below the YTD highs, there are multiple levels of resistance above. This week SPX did not continue breakouts above current resistance as in prior weeks. Current resistance above continues in the 1180s, the closing dip of 1183.71 on April 27 (middle yellow horizontal line on the daily chart above), then the April 30 dip of 1186.69,  and next the April 6 sub-peak close of 1189.44 (highest yellow horizontal line on the daily chart above).

The April 6 resistance of 1189.44, the highest yellow horizontal line, was pinned on October 21 with the SPX intraday high of 1189.43, pinned through on October 25, and pinned again on October 28. All 3 attempts failed and SPX closed below. The April 27 resistance of 1183.71, the middle yellow horizontal line, has been closed above recently, but SPX pulled back below on October 29. Ultimately the highest peak, and resistance, is the the lofty 2010 YTD closing high of 1217.28..

Support Because the SPX is above the YTD lows, there are multiple levels of support below. Nearest key support is the April 7 dip of 1182.45, the March 23 peak of 1174.17, and the sub-peak closing of 1171.67 on May 12 (lowest yellow horizontal line on daily chart above). This May 12 support of 1171.67 was tested on October 27 with an intraday low of 1171.70 and on Octber 21 with an intraday low of 1171.17. Next support is the peak closing of 1150.23 on January 19, 2010. The top of the summer trading range is now distant support and a milestone: the intraday price of 1131.23 on June 21 and the closing price of 1127.79 on August 9.

Moving Averages The 25d sma continues ascending and is above the 50d, 100d, and 200d sma's. The 50d sma is ascending, regained the 100d on September 22, and regained the 200d sma on October 22. This negated two Death Crosses. The 100d sma is now ascending just above and along the uptrend line (not shown on chart), but continues below the 200d sma. The 200d sma remains above the 100d sma and has begun slightly ascending (not shown on chart). The three Death Crosses and two reversals are discussed at the beginning of this post.

Uptrend Line (not shown on chart) 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 42 consecutive trading days.

Downtrend Line The 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 rallied above this trendline on October 5 and has remained above for 19 consecutive trading days, the first time since setting the YTD high on April 23.

Relative Strength Index (RSI) The RSI 14 day = 62.53 is reasonable, descending, and pulled back from recent highs. The multi-year abysmal low was 10.40 on July 6. The 2010 peak was 99.30 on on March 17. The RSI 28 day = 62.29 is reasonable, slightly ascending, and below recent  highs. The 2010 low was 34.09 on May 25 at 34.09. The 2010 peak was 84.25 on April 5. Both RSIs are reasonable and virtually the same, reflecting the recent mostly sideways trading and small weekly gains.

MACD (12,26,9) The MACD = -1.37, is descending, been negative for 4 consecutive trading days, and reflects the recent mostly sideways trading and small weekly gains. 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 1106.66 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 then regained and lost the indicator several times, signalling uncertainty and lack of trend during the summer trading range. SPX regained the 10m ema in September and continues above in October indicating a bull market.

Conclusion The September Rally continued into October but is sputtering to a halt. The past 4 weeks of gains have decreased each week. The intermediate term trend is bullish and the long term trend is bullish. Perceived net positive economic data pushed SPX above the top of the summer trading range of 1130, then above 1150, initial positive earnings reports pushed SPX onwards to just below 1170, ongoing earnings reports and economic data rallied SPX to above 1170, and then the past 2 week to the low 1180s. Ultimately the highest peak, and resistance, is the the 2010 YTD closing high of 1217.28.

S&P 500 Monthly Chart: Rally at Resistance

Below a very long-term view of the SPX on a monthly chart since July 1998. The chart includes all historical price interaction with the current SPX price. The overall analysis and commentary are the same as for the daily chart above. The yellow horizontal lines, uptrend line, and downtrend line are the same, and as described, on the daily chart above, as applicable. 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 1183.26 is currently above the 10m ema of 1106.66 which signals a long-term bull market.

We have no position in SPX, SPY, or any other related ETF.

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