Saturday, January 15, 2011

S&P 500 at Multi-Year High, Approaches 1300! (Charts) *7 consecutive weekly gains*

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USA Economic Recovery Appears to be Gaining Momentum: How High will this Propel the S&P 500?

S&P 500 Overview

S&P 500 The S&P 500 continued upwards this past week closing at 1293.24 on Friday, January 14, 2011. The S&P 500 has gained 7 consecutive weeks and 17 of the last 20 weeks. The S&P 500, SPX, was up +1.71% and +21.74 for the week and is up +2.83% and +35.60 for the month and year. SPX is up +91.16% and +616.71 since the March 9, 2009 market bottom. SPX is just below the multi-year closing high of 1300.68 set on August 28, 2008. This next highest close is 1305.31 on August 11, 2008 which was the peak of the rally. These 2 closings, approximately 1300 and 1305, are the next higher hurdles for the S&P 500. Beyond that is all the way back to June 25, 2008 and a close of 1321.97.

2010 for the Record The S&P 500 finished 2010 up +12.78% and +142.54 points plus gained the last 5 consecutive weeks of 2010 and was up 15 of the last 18 weeks in 2010. SPX finished December up +6.53%, after barely down in November -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, January 14, 2010 at a very low 15.46, barely above the multi-year low of 15.45 set on Wednesday, December 22. That was the lowest close of 2010 and the lowest close since July 19, 2007 (15.23). The VIX is below the 20 day simple moving average (16.89) and well below the 50, 100, and 200 day simple moving averages. The 100d sma crossed below the 200d - a Death Cross - on November 11. No additional Death Crosses appear imminent. VIX was down -9.80% for the week, finished December down an incredible -24.60%, finished 2010 down -18.13%, and is down -68.88% since the March 9, 2009 stock market bottom. The VIX is down -66.24% from the 2010 closing high of 45.79 on May 20. The VIX put in a triple bottom in mid-April 2010 with a 2010 YTD closing low of 15.58 on April 12.

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

Current The S&P 500 of 1293.24 continues upwards, which takes the index back to late August 2008 and specifically to the next benchmark hurdle, and resistance, of 1300.68 on August 28, 2008. Looking back, the S&P is climbing up the back side of the rally that peaked on August 11, 2008 at 1305.31. In retrospect, from that peak, the S&P was overall downhill until the cyclical low of 676.53 on March 9, 2009. That was 617 points and 676 days ago.

Background The S&P 500 has arrived, back to the beginning of the pre-Great Recession prices, slowly continuing upwards through the 1) July 2008 correction, August 2008 rally, and September 2008 plunge, 2) the beginning and end of the April 2006 rally peak, 3) the February 2001 plunge, and 4) the early 1999 consolidation. 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 and upwards through the 1300s. If no, the SPX is approaching strong resistance at 1300 - 1305 and will most likely stall at awaiting stronger economic data and corporate earnings to justify a pre-Great Recession valuation.

History 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 and markets realized how bad it really was. Lehman Brothers declared bankruptcy on September 15, 2008 and the Great Financial Crisis, among other crises, began. The S&P 500 trading ranges for those months were:
May 2008: 1373 - 1440 with a close of 1400
June 2008: 1272 - 1404 with a close of 1280
July 2008: 1200 - 1292 with a close of 1267
August 2008: 1247 - 1313 with a close of 1283
September 2008: 1106 - 1303 with a close of 1166
As can be seen, the current SPX of 1293.24 is in the August/September rally range and about to enter the higher, June 2008 price range. 

Economy Overall, the USA & Global economic data for October, November, and December has been very encouraging, with the exception of the Reuters/University of Michigan consumer sentiment dropping in early January, attributable to rising gasoline prices, and The Conference Board consumer confidence dipping in late December. Gallup reports economic confidence improved in early January, but is at about the same level as a year ago (January 2010). The December monthly data, a Monthly Economic Review, is here [USA & Global Economy: Encouraging News in December (Charts) *Monthly Economic Review*] We predict the December data, to be reported in January, will be also and be the best post-Great Recession month to-date. The ongoing EU sovereign debt crisis may continue to be a drag on USA equities but will not hold the S&P 500 down ultimately.

The Future We have pulled out the Magic 8 Ball to divine what lies ahead for the S&P 500. Greed and optimism are currently trumping fear and negativity in the equity markets. Previously we stated there was an upside bias for the S&P 500 to at least the 1270 - 1275 range and probably to 1300 - 1305. The SPX has exceeded this lower level 1270 - 1275. We then predicted the SPX has an upside bias to 1300 - 1305, which is the peak of the August 2008 rally. SPX is now just below at 1293.24. The arrival at the 1300 - 1305 level may well prove to be strong resistance, generate profit taking, and a short-term, possibly intermediate-term, pullback. However, we now believe the SPX has an upside bias to 1321, when the 1300 - 1305 resistance is eventually rallied through. Q4 2010 corporate earnings, Q4 USA economic growth, and Q4 global economic growth should exceed Q3 2010 and propel the S&P 500 to at least 1300 - 1305, if not higher. We now estimate the USA GDP for Q4 2010 will be approximately +3.35% QoQ. However, we are mildly concerned that the Q1 2011 data may indicate that at least the USA economic recovery, if not the global economic recovery, has slowed, not stalled, from Q4 2010. This would halt the additional momentum necessary for the SPX to continue upwards through the 1300s to 1400 and onwards to the peak of the May 2008 rally (a very distant 1426.63 closing on May 19, 2008).

Economic and Market News Information about the USA and world economies plus the USA financial system are posted at Boom Doom EconomyFinancial Controls, and Baidu Planet.

S&P 500 at Multi-Year High, Approaches 1300!
616.71 points in 676 days since the March 9, 2009 cyclical low of 676.53!

S&P 500 Weekly Chart Below is the SPX weekly chart from from the October 9, 2007 all-time closing high of 1565.15 to the current close of 1293.24 on January 14, 2011. A monthly chart is included lower on this page for an even longer-term perspective.

Noteworthy Closing Prices
Current Close: 1293.24
2011 High: January 14 1293.24
2011 Low: January 10 1269.75
2010 High: December 29 1259.78
2010 Low: July 2 1022.58
YE December 31, 2010: 1257.64
YE December 31, 2009: 1115.10
Market Cyclical Low: March 9, 2009: 676.53

The weekly chart is shown this week and does not include the 20, 25, 50, 100, and 200 day simple moving averages discussed in the commentary 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 continues bullish. Both sma's are ascending.

Resistance The S&P 500 at a multi-year closing high of 1293.24. Current resistance is 1300 and 1305, which is both a psychological barrier and the closings on August 28 and 11, respectively. Their is no  current intraday high resistance as SPX closed at the high of the day. Higher, long-term resistance is 1321.97, the close on June 25, 2008. (These prices are based on Google Finance historical prices, which are slightly different than Yahoo Finance historical prices).

Support Current significant short-term support is 1270 from the January 3 and 10 dips. Further below is the 20 day simple moving average of 1266.19. Further below is support at the 50 day simple moving average of 1233.77.

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 January 5, 2011 multi-year closing high of 1276.56. SPX has created a new downtrend line with the current multi-year high.

Relative Strength Index (RSI) The RSI 14 day = 79.08 is overbought, ascending, below the recent peak of 88.90 on January 5, 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 = 81.12 is overbought, ascending, and below the recent peak of 84.17 on January 10. The 2010 low was 34.09 on May 25 at 34.09. The 2010 peak was 84.25 on April 5. SPX is now overbought short-term and even more so intermediate-term. A short-term correction and/or sideways trading is probably imminent.

MACD (12,26,9) The MACD = +0.54 is reasonable and spiked upwards with the January 14 surge upwards. MACD plunged to -11.44 on May 7, 2010, the lowest reading since the October 2008 financial panic. MACD peaked at +8.43 on June 18, 2010, the highest since the rally off the bottom in March 2009.

Long-Term Trend The 10 month exponential moving average of 1172.04 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, 2010 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 has continued above since.

Conclusion We maintain there is an upside bias for the S&P 500 to 1300 - 1305. The intermediate term trend continues bullish and the long term trend continues bullish. Ongoing overall positive USA and Global economic news continues to propel the rally and even stronger economic data is expected in January (for mostly December data). Q4 earnings season financial results have been encouraging and have provided additional momentum upwards. The Financial Post has a summary of the 2010 stock market stories, Climbing a Wall of Worry, which seems an appropriate description for 2010. Even with all the negativity and dire predictions, the S&P 500 has risen above.

S&P 500 Monthly Chart

Below a very long-term view of the SPX on a monthly chart since March 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 weekly chart above. The uptrend line and downtrend line are the same, and as described, above in the daily chart discussion. The white moving average line is the 10 month exponential moving average, which is the long-term bull or bear market signal, as discussed the weekly chart discussion. The current SPX price continues well above the 10m ema which signals a long-term bull market. The white 10m ema is tracking right on the yellow uptrend line, making it difficult to see.

We have no position in SPX, SPY, or any other related ETF as of this posting. We will so note such positions at the time of a weekly posting, but not any short-term trades, such as intraday or intraweek trades, between the weekly postings.

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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