Friday, November 26, 2010

S&P 500 Rally Stalls at Resistance (Charts) *Market stand off at 1200?* SPX SPY

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Bull and Bear Stand Off at 1200?
S&P 500 Down for Week -0.86%
Up 10 of Last 13 Weeks

S&P 500 Overview

S&P 500 The S&P 500 was down this week, closing at 1189.40 on Friday, November 26, 2010. The S&P 500, SPX, was down -10.33 and -0.86% for the week, but is still up +6.14 and +0.52% for November, is up +6.66% for the year, and is up +75.81% since the March 9, 2009 market bottom. SPX is down -36.45 and -2.97% from the November 5, 2010 YTD and multi-year closing high of 1225.85, which was the highest close since the September 19, 2008 close of 1255.08.

Death Cross The 100 day simple moving average regained the 200d sma on Wednesday, November 24, reversing the last  Death Cross (from August 24).

Volatility The VIX closed Friday, November 26, 2010 at 22.22 and regained the both the 25 day and 50 day simple moving averages this past week, on November 26. The VIX continues below the 100 and 200 day simple moving averages. The 100d sma crossed below the 200d - a Death Cross - on November 11. VIX was up +23.06% for the week, is up +4.72% for November (more than the SPX is up), is now up +2.40% for the year, and down -55.31% since the March 9, 2009 market bottom. The VIX is down -51.52% from the 2010 YTD closing high of 45.79 on May 20. The VIX put in a triple bottom in mid-April with the 2010 YTD closing low of 15.58 on April 12.

The Big Question What happens now? Up, Down, Sideways? The S&P 500 rallied in September, eventually rallied above the summer  trading range, and the September Rally continued into October. In November, the weekly gain (loss) has been +3.60%, -2.17%, +0.04%, and -0.86%. The S&P 500 is still up in November +0.86%. The EU members' sovereign debt and fiscal problems, this time notably Ireland, have stalled the S&P 500 as bonds and the US Dollar have rallied. Overall the data for the USA and global economies in October has been positive and encouraging but this news has been offset by the sovereign debt issue. The economic recovery in the USA and world had slowed during the Summer Slump, but did not stall, and now the manufacturing and services sectors are expanding once again. The overall drag of the ongoing EU sovereign debt crisis is stalling the SPX rally short-term, but we maintain there continues to be an upside bias for the S&P 500 as Q4 corporate earnings, USA economic growth, and global economic growth should exceed Q3. However, Q1 2011 may indicate the USA & global economic recovery has slowed from Q4 2010.

Economic and Market News Information about the USA and world economies plus the USA financial system are posted at Boom Doom Economy and Financial Controls.

S&P 500 Rally Stalls at Resistance

S&P 500 Daily Chart Below is the SPX daily chart from late March to illustrate current price interactions from March, April, and May 2010. A monthly chart is included at the bottom of this page for a long-term perspective.

Noteworthy Closing Prices on Daily Chart Below
Current Close: 1189.40
2010 YTD High, November 5: 1225.85
2010 YTD Low, July 2: 1022.58
YE December 31, 2009: 1115.10

Trading Range Since dropping below 1200 on Friday, November 12, SPX has closed between 1178 and 1200 for 10 consecutive trading days. These are the middle and lowest yellow horizontal lines on the daily chart below.

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 and is now bullish. Both sma's are ascending, and have caught up with the September (+8.8%) and October (+3.7%) rallies and the November gain (+1.4%).

Resistance SPX is below the YTD and multi-year high of 1225.85 on November 5, which is final current resistance above. The previous YTD high of 1217.28 on April 23 is also benchmark resistance (highest yellow horizontal line on daily chart above). The action, and current resistance, is obviously at 1200 (middle yellow horizontal line on daily chart above). SPX dropped below 1200 on Friday, November 12 and has yet to regain and close above for the past 10 trading days. In addition, the 20 day simple  moving average (not shown on chart) is now 1199.58 and current resistance. SPX dropped below the 20d sma on Tuesday, November 16 and has yet to definitively regain. Previously support, 1200 has become resistance and the top of the trading range.

Support The 1178 area, with closes of 1178.34 and 1178.59 on November 16 and 17, respectively, have become recent support and the bottom of the trading range (lowest yellow horizontal line on the daily chart above). There are many levels of support below, but 1178 is key and will determine the strength of buyer conviction. The May 12 peak close of 1171.67 is potential next support.

Moving Averages SPX is below the 20 and 25 day simple moving average but above the 50, 100, and 200 day. The 20d and 25d sma are slightly ascending and 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. The 100d sma is ascending and risen above the uptrend line and regained the 200d sma on Wednesday, November 24. The 200d sma has begun ascending.

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 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 has remained above since.

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 November 5, 2010 YTD and multi-year closing high of 1225.85. SPX has remained below since that close.

Relative Strength Index (RSI) The RSI 14 day = 35.43 is oversold, plunging, the lowest since August 31, and well below the 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 = 51.11 is reasonable, descending, and well 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 well below the highs due to the recent pullback and sideways trading with plenty of upside room.

MACD (12,26,9) The MACD = -3.48, moving sideways, and has been negative for 10 consecutive trading days. MACD had plunged to -11.44 on May 7, the lowest reading since the October 2008 financial 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 1121.71 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 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 and November indicating a bull market.

Conclusion As noted above, the overall drag of the ongoing EU sovereign debt crisis may stall the SPX rally short-term, but we maintain there continues to be an upside bias for the S&P 500 as Q4 corporate earnings, USA economic growth, and global economic growth should be encouraging. The intermediate term trend continues bullish and the long term trend continues bullish. Perceived 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 slowly to the low 1180s. Then the mid-term elections, the Federal Reserve's announcement of quantitative easing, and positive October economic date propelled the SPX to above 1200 and a YTD and multi-year high. The recent pullback and sideways trading does not appear to be an intermediate or long term trend change.

S&P 500 Monthly Chart

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 and current resistance and support. SPX has a long history of interaction with 1200, both as resistance and  support. 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 1199.73 continues well above the 10m ema of 1121.71 which signals a long-term bull market.

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

About the S&P 500

The S&P 500® has been widely regarded as the best single gauge of the large cap U.S. equities market since the index was first published in 1957. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities, it is also an ideal proxy for the total market. S&P 500 is maintained by the S&P Index Committee, a team of Standard & Poor’s economists and index analysts, who meet on a regular basis. The goal of the Index Committee is to ensure that the S&P 500 remains a leading indicator of U.S. equities, reflecting the risk and return characteristics of the broader large cap universe on an on-going basis. The Index Committee also monitors constituent liquidity to ensure efficient portfolio trading while keeping index turnover to a minimum.

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