Saturday, December 4, 2010

S&P 500 Regains 1200! (Charts) *Just below multi-year closing high!*

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Bulls Rally to Just Below Multi-Year High!
S&P 500 Up for Week +2.97%
Up 11 of Last 14 Weeks

S&P 500 Overview

S&P 500 The S&P 500 was rallied this week, closing at 1224.71 on Friday, December 3, 2010. The S&P 500, SPX, was up a strong +35.31 and +2.97% for the week, is up +44.16 and +3.74% for December, is up +9.83% for the year, and is up +81.03% since the March 9, 2009 market bottom. SPX is down just -1.14 and -0.09% 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. SPX 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 3, 2010 at 18.01, the lowest closed since April 26, 2010 (17.47). The VIX is below the 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 -18.87% for the week, is down -23.49% for December, is down -16.93% for the year, and down -63.75% since the March 9, 2009 market bottom. The VIX is down -60.67% 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 rallied in September, eventually rallied above the summer  trading range, and the September Rally continued into October. November was flat, a slightly negative -0.23%. The EU members' sovereign debt and fiscal problems, this time notably Ireland and Portugal, stalled the S&P 500. Overall the data for the USA and global economies in November (mostly October data) had been positive and encouraging but this news was 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 stalled 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. The disappointing, and somewhat shocking, increase in the USA unemployment rate to 9.8% in November has not stopped the rally but probably did prevent the S&P 500 from breaking through the multi-year high of 1225.85 on Friday, December 3.

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 Regains 1200

S&P 500 Daily Chart Below is the SPX daily chart from mid-April to illustrate current price interactions from 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: 1224.71
2010 YTD High, November 5: 1225.85
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 is now bullish. Both sma's are ascending, and have caught up with the September (+8.8%) and October (+3.7%) rallies and the flat November (-0.23%).

Resistance SPX is just below (within 1.14!) the YTD and multi-year closing high of 1225.85 on November 5, which is current resistance above (highest yellow horizontal line on daily chart above). SPX pinned 1225.57 on December 3, within 0.28! Next resistance above would be the intraday highs of 1226.84 and 1227.08 on November 9 and 5, respectively. Above that is long-term resistance from September 2008.

Support Current support is the previous YTD high of 1217.28 on April 23 (middle yellow horizontal line on daily chart above). Next major support is the benchmark 1200 (lowest yellow horizontal line on daily chart above). Additional support is the 20 day simple moving average of 1201.60. The 25 day simple moving average is 1200.49.

Moving Averages SPX is above all significant simple moving averages: the 20, 25, 50, 100, and 200 day. All are ascending except the 20d, which has leveled off. Each is above any longer term average and are beginning to 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.

Relative Strength Index (RSI) The RSI 14 day = 59.05 is reasonable, bounced above the recent low of 35.43 (oversold) on November 26, and is ascending. 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 = 58.66 is reasonable, leveled off, 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, even with the last 3 days of rally. There is plenty of upside room.

MACD (12,26,9) The MACD = +1.29, ascending, and positive 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 1139.12 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 stalled 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 November increase in the unemployment rate to 9.8% was disappointing, but the manufacturing and services sectors are expanding. 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 Q3 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 have been negated by this last week's 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 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 1224.71 continues well above the 10m ema of 1139.12 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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