Saturday, January 29, 2011

S&P 500 Drops on Egyptian Uprising (Charts) *Economic news, corporate earnings pushed aside*

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Egyptian protester defaces poster of President Hosni Mubarak this past week

S&P 500 Overview

S&P 500 The S&P 500 dipped this past week closing at 1276.34 on Friday, January 28, 2011. The S&P 500, SPX, was down -0.55% and -7.01 for the week and is up +1.49% and +18.70 for the month and year. SPX is up +88.66% and +599.81 since the March 9, 2009 market bottom. The SPX closed at 1299.54 on Thursday, January 27, a multi-year closing high, which was the highest close since the closings of 1300.68 on August 28, 2008 and 1305.31 on August 11, 2008. SPX is -1.79% and -23.20 below this multi-year closing high. The S&P 500 has gained 17 of the last 22 weeks.

Volatility The VIX closed Friday, January 28, 2011 at a much higher 20.04, the highest close since December 1, 2010 (21.36). VIX put in a double bottom and multi-year lows of 15.45 on Wednesday, December 22, 2010 and 15.46 on January 14, 2011. Those were the lowest closings of 2010 and the lowest closings since July 19, 2007 (15.23). The VIX is now above the 20, 50, and 100 day simple moving averages. VIX continues below the 200d sma. The 100d sma crossed below the 200d - a Death Cross - on November 11, 2010. No additional Death Crosses appear imminent.

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

Current The S&P 500 dropped -1.79% and -23.20 on Friday to 1276.34 after the multi-year closing high of 1299.54 on Thursday. The USA Q4 GDP was announced as +3.2% (advance estimate) on Friday morning along with the USA 2009 Annual GDP of +2.9% (advance estimate). This was good, if not very good, news. Corporate earnings season has been good, if not very good. Overall USA and Global economic news has been good, if not very good. SPX pinned through 1300 on Thursday and was also above 1300 early on Friday before the big pullback occurred. WTF happened? Apparently the Egyptian anti-government riots panicked the equity markets and the push upwards to above 1300 was over for the day and perhaps short-term. This reaction is the same as with the EU sovereign debt crisis with Greece, Spain, Portugal, Ireland, et. al. This too will pass. There does not appear to be risk of war and the USA isn't going to do anything drastic with regards to its ally Egypt. There is a general discontent and unrest in the Arab World, starting with Tunisia, then Egypt, and perhaps next Jordan. However, the overall Global economic recovery and growth is being lead primarily by Asia. The uncertainty was too much for the equity markets and down it went.

S&P 500 Background & History See recent posts for detailed background of history of where the  S&P 500 is in relation to 2008.

Economy Overall, the USA & Global economic data for October, November, December, and January early indicators have overall been encouraging. The December monthly data, a Monthly Economic Review, is here [USA & Global Economy: Encouraging News in December (Charts) *Monthly Economic Review*] and the January Monthly Economic Review, to be posted this next week, appears just as encouraging.  We predicted the December data, as reported in January, would be the best post-Great Recession month to-date. This has mostly been true. The ongoing EU sovereign debt crisis, the Egyptian uprising, or other Arab World discontent may continue to be a drag on USA equities periodically, but will not be the deciding factor in what stalls S&P 500 Post-Great Recession Rally. Slower USA and Global economic growth is what can stall the SPX.

The Future We have pulled out the Magic 8 Ball to divine what lies ahead for the S&P 500. The bulls, aka greed and optimism, have been trumping the bears, aka fear and pessimism, in the equity markets for the past few months. However, the bears did have their day on this most recent Friday as discussed above. Exclusive of EU sovereign debt, Egyptian uprising news, or any other international crisis short of all-out war, the seeming vagaries of the short-term market appear to be profit-taking and consolidation, not a change to a long term, or even intermediate term, downward trend.

While a correction and pullback is inevitable and perhaps this has arrived, we continue predicting the SPX has an upside bias to 1300 - 1305, which is the peak of the August 2008 rally. SPX technically arrived there on Thursday, January 27, 2011. As noted previously, 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. The Egyptian uprising may well have provided the short-term impetus. However, we continue to 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 have exceeded Q3 2010 and has propelled the S&P 500 to 1300 - 1305 benchmark. We continue to estimate the USA GDP for Q4 2010 at +3.4% QoQ minimum. The BEA advance estimate was +3.2%. 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). A Q1 2011 GDP of less than 3% would probably halt the SPX short and intermediate term uptrend.

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 Drops on Egyptian Uprising
599.81 points in 690 days since the March 9, 2009 cyclical low of 676.53!

S&P 500 Weekly Chart Below is the SPX daily chart from from December 1, 2010 to the current close of 1276.34 on January 28, 2011. December 1 was when the SPX rallied above the 20 day simple moving average and stayed above until January 28. A monthly chart is included lower on this page for an even longer-term perspective.

Noteworthy Closing Prices
Current Close: 1276.34
2011 High: January 27 1299.54
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 daily chart does not show the 200 day simple moving average 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 Key resistance is the 20 day simple moving average of 1281.20. This is the first test of buyer conviction and overall bullish sentiment. Also in this area is 1280 and 1284 and upwards to stronger resistance at 1291. The S&P 500 is now below the January 27 peak, multi-year closing high of 1299.54, which is higher  resistance. Highest intraday resistance is 1302.67 on January 28.

Support SPX has closed at technical support at the 1276 area plus at the 25 day moving average of 1276.58. Additional significant short-term support is 1270 from the January 3 and 10 dips and below that more support is at 1259-1260. Further below is support at the 50 day simple moving average of 1247.79. There are multiple levels of support below the current price.

Moving Averages SPX closed below the 20 day simple moving average for the first time since November 30. SPX is right at the 25d sma and continues above the 50d, 100d, and 200d sma's. All the sma's 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 27, 2011 multi-year closing high of 1299.54. SPX dropped below the next day.

Relative Strength Index (RSI) The RSI 14 day = 52.73 is reasonable, descending, 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, 2010. The 2010 peak was 99.30 on on March 17. The RSI 28 day = 61.74 is reasonable, descending, and below the recent peak of 84.17 on January 10. The 2010 low was 34.09 on May 25. The 2010 peak was 84.25 on April 5. SPX has now dropped to reasonable RSI levels.

MACD (12,26,9) The MACD = -1.79 is the lowest since December 1 (-2.19) with the January 28 drop. 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 1168.97 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 a 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 The SPX has reached the 1300-1305 benchmark and psychological price and pulled back. A correction, pullback, consolidation may occur before an upside breakout. We maintain there is an upside bias for the S&P 500 to 1321. The intermediate term trend continues bullish and the long term trend continues bullish. Ongoing overall positive USA and Global economic news plus Q4 2010 corporate earnings continue to sustain the long-term rally.

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 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 daily 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.

Disclosure 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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