Friday, December 17, 2010

S&P 500 at Another 2+ Year High! (Charts) *567 point rally in 648 days*

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Bulls Rally to Highest Close since September 19, 2008
Up 13 of Last 16 Weeks

S&P 500 Overview

S&P 500 The S&P 500 rallied to the highest close since the March 9, 2009 market bottom (676.53) and since September 19, 2008 (1255.07) this week, closing at 1243.91 on Friday, December 17, 2010. The S&P 500, SPX, was up a mere +3.51 and +0.28% for the week, is up +63.36 and +5.37% for December, is up +11.55% for the year, and is up +83.87% since the March 9, 2009 market bottom. SPX is at a multi-year closing high. The S&P 500 finished November down -2.71 and -0.23%, after gains in October (+3.69%) and September (+8.76%), a loss in August (-4.74%), and a gain in July (+6.88%).

Volatility The VIX closed Friday, December 10, 2010 at a very low 16.11, which was the lowest close since April 20, 2010 (15.73). The VIX is well below the 20, 25, 50, 100, and 200 day simple moving averages. The 100d sma crossed below the 200d - a Death Cross - on November 11. VIX was down -8.52% for the week, is down and incredible -31.56% for December, is down -25.69% for the year, and down -67.57% since the March 9, 2009 market bottom. The VIX is down -64.82% 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 VIX was up +11.04% for November.

The Big Question What happens now? Up, Down, Sideways?

The S&P 500 is at an interesting level (1243.91) which takes the index back to September 2008 and specifically to the next benchmark price, and resistance, of 1255.07 on September 19, 2008. If you will recall, the SPX plunged in June 2008, which was a precursor for bad times ahead. There was an additional dip in July 2008 and a gain in August 2008, when some were saying the bear market was over. Of course, in retrospect, the worst was still ahead for the USA & Global economies and the stock markets. Lehman Brothers would file bankruptcy on September 15, 2008, the USA financial crisis began, the Great Credit Bubble burst, and the Great Recession was upon us. The S&P 500 would plunge in September, October, and November 2008 from a high in the 1300 area to a low in the 740 area. Ultimately the cyclical bottom was later, on March 9, 2009, at 676.53.

The S&P 500 is at a crossroads, see monthly chart below, slowly grinding upwards through the 1) September 2008 plunging price range, 2) the July, August, September, November 2005 trading range, and 3) the March, April, May, June 2001 trading range. Has the recovery of the USA and Global economies proceeded far enough to justify a pre-Great Recession price in the SPX? If yes, the SPX is on the way to 1300+. If no, the SPX will encounter resistance at about 1270 and 1300 and stall at one of these prices awaiting stronger economic data and corporate earnings to justify a pre-Great Recession valuation.

July 2008 was really the end of the Good Old Days: commodities, including oil, peaked, the Great Credit Bubble was about to totally burst, word was out the banks were in big trouble, and the Great Recession would soon arrive in full force. The rally in August 2008 was a last glimmer of hope before the world realized how bad it really was. The July 2008 trading range for the S&P 500 was 1200 - 1292 with a close of 1267.

The S&P 500 has arrived, back to the beginning, back to the pre-Great Recession prices, before the USA and Global economies unraveled. The rally began on March 10, 2009 off the March 9, 2009 cyclical bottom and through the ups and downs, hope, fear, good and bad news, the SPX has rallied all the way back to July 2008. Overall, the USA & Global economic data for October and November are very encouraging. We predict the December data will be also and be the best post-Great Recession month to-date. The ongoing EU sovereign debt crisis, notably Ireland at present, continues to be a drag on USA equities but will not hold the S&P 500 down ultimately.

We maintain there continues to be an upside bias for the S&P 500 to at least 1270 and perhaps to 1300 as Q4 2010 corporate earnings, USA economic growth, and global economic growth should exceed Q3 2010. However, Q1 2011 may indicate the USA & global economic recovery has slowed from Q4 2010. The disappointing, and somewhat shocking, increase in the USA unemployment rate to 9.8% in November has not stopped the rally but probably has prevented the S&P 500 from breaking through the multi-year high of 1255.07 on September 19, 2008. However, we believe this benchmark will be attained, perhaps by year-end 2010. If not, the Q4 2010 earnings season in January 2011 and impressive USA and Global economic data for December 2010 will push the SPX up to 1270 and even possibly to 1300.

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 at Another 2+ Year High!
"What a long strange trip it's been"
567.38 points in 648 days!

S&P 500 Daily Chart For a change of pace, below is the SPX daily chart from the March 9, 2009 market bottom close of 676.53 up through the current December 17, 2010 close of 1243.91 - all 567.38 points of the 648 day rally. No resistance and support lines shown this week. A monthly chart is included at the bottom of this page for an even longer-term perspective.

Noteworthy Closing Prices on Daily Chart Below
Current Close: 1243.91
2010 YTD High, December 17: 1243.91
2010 YTD Low, July 2: 1022.58
YE December 31, 2009: 1115.10

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 continues bullish. Both sma's are ascending, and have caught up with the September (+8.8%) and October (+3.7%) rallies, the flat November (-0.23%), and the positive December (+5.4%).

Resistance (not shown on daily chart above this week) There is no current closing resistance, except for intraday highs, as SPX closed at a multi-year high of 1243.91 on Friday, December 17. The current intraday resistance is 1246.73, 1246.59, 1244.25, and 1245.81 on December 13, 14, 15, and 17. SPX is just below multi-year closing high of 1255.07 on September 19, 2008 which is long-term benchmark resistance. Next resistance above would be the September 8 and 3, 2008 closings of 1267.79 and 1274.98, respectively. Next are the late summer 2008 rally highs of approximately 1300 and 1305 on August 28 and 11, respectively. (These prices are based on Google Finance historical prices, which are slightly different than Yahoo Finance historical prices).

Support (not shown on daily chart above this week) Current support is the previous YTD highs of 1225.85 on November 5 and 1217.28 on April 23. Next major support is the benchmark 1200. Additional support is the 20 day simple moving average of 1216.96. The 50 day simple moving average is 1200.46.

Moving Averages SPX is above all significant simple moving averages: the 20, 25, 50, 100, and 200 day. All are ascending. Each is above any longer term average and are spread out in a bullish fan.

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 rallied above on December 2 and has closed above since.

Relative Strength Index (RSI) The RSI 14 day = 82.47 is overbought, ascending, and well above the recent low of 35.43 (oversold) on November 26. 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 = 54.91 is reasonable, ascending, 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. SPX is overbought short-term but reasonable intermediate-term.

MACD (12,26,9) The MACD = +1.86, descending, and positive for 11 days, after 14 negative 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 1142.61 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, November, and December indicating a bull market.

Conclusion As noted above, the overall drag of the ongoing EU sovereign debt crisis stalled the SPX rally short-term, but we maintain there continues to be an upside bias for the S&P 500 to at least 1270 and perhaps to 1300. The intermediate term trend continues bullish and the long term trend continues bullish. Positive economic news in December (mostly November data) continues to propel the rally.

S&P 500 Monthly Chart

Below a very long-term view of the SPX on a monthly chart since December 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 both 1200 and 1300, both as resistance and  support. The overall analysis and commentary are the same as for the daily chart above. The yellow horizontal lines (not shown this week), 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. The current SPX price continues well above the 10m ema of 1142.61 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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