Friday, December 24, 2010

S&P 500 at Lofty Heights (Charts) *Climbing the wall of worry*

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It's been Golden for the Bulls in the Last Half of 2010
S&P 500 Up 14 of Last 17 Weeks

S&P 500 Overview

S&P 500 The S&P 500 rallied again this past week, closing at 1256.77 Thursday, December 23, 2010. The S&P 500, SPX, was up +12.86 and +1.03% for the week, is up a surprising +76.22 and +6.46% for December, is up +12.70% for the year, and is up +85.77% since the March 9, 2009 market bottom. SPX is just below the multi-year closing high of 1258.84 set on Wednesday, December 22. This was the highest close since the September 8, 2008 close of 1267.79 and higher than the previous barrier of 1255.07 on September 19, 2008. The next higher hurdle will be the September 3, 2008 close of 1274.98. The S&P 500 finished November barely down -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 Thursday, December 23, 2010 at a very low 16.47, which was a slight bounce upwards from the multi-year low of 15.45 on Wednesday, December 22. This was the lowest close of 2010 and the lowest close since July 19, 2007 (15.23). 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 up +2.23% for the week, is down an incredible -30.03% for December, is down -24.03% for the year, and down -66.85% since the March 9, 2009 market bottom. The VIX is down -64.03% 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% in November.

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

The S&P 500 continues at an interesting level (1256.77) which takes the index back to early September 2008 and specifically to the next benchmark hurdle, and resistance, of 1267.79 on September 8, 2008. Looking back, the S&P is climbing up the rally that peaked on August 11, 2008 at 1305.31. In retrospect, from that peak, the S&P was downhill until the cyclical low of 676.53 on March 9, 2009. That was 580 points and 654 days ago.

The S&P 500 has arrived, back to the beginning of the pre-Great Recession prices, 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 1270-1275 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.

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 the 1270 - 1275 range and probably to 1300 - 1305 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. 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 - 1275 and even probably 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 Lofty Heights
580.24 points in 654 days since the March 9, 2009 cyclical low!

S&P 500 Daily Chart Below is the SPX daily chart from the intermediate-term market bottom and YTD low of 1022.58 on July 2, 2010 up through the current December 23, 2010 close of 1256.77 - all 234.19 points of the 174 day rally. 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: 1256.77
2010 YTD High, December 22: 1258.84
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 (+6.5%).

Resistance The S&P 500 is just below the multi-year closing high of 1258.84 on Wednesday, December 22, which is current resistance (the yellow horizontal line on the daily chart above). The current intraday high resistance is 1259.39 also on December 22. Long-term benchmark resistance is the September 8, 2008 close of 1267.79 and then the September 3, 2008 close of 1274.98. 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 notable 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 1229.00. The 50 day simple moving average is 1207.23.

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 December 22, 2010 YTD and multi-year closing high of 1258.84. SPX is just below.

Relative Strength Index (RSI) The RSI 14 day = 80.77 is overbought, descending from the peak of 90.36 on December 20, 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 = 64.92 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 continues overbought short-term but reasonable intermediate-term.

MACD (12,26,9) The MACD = +1.73, descending, and positive for 15 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 1144.95 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 We maintain there continues to be an upside bias for the S&P 500 to at least 1270 - 1275 and probably to 1300 - 1305. 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 and even stronger economic data is expected in January (for December data). The Financial Post has a summary of the 2010 stock market stories, Climbing a Wall of Worry, which seems an appropriate description of this year. Even with all the negativity and dire predictions, the S&P 500 has risen above in 2010.

S&P 500 Monthly Chart

Below a very long-term view of the SPX on a monthly chart since January 1999. The chart includes all historical price interaction with the current SPX price. 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 line is the current price. The 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 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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