Saturday, February 19, 2011

S&P 500 at Highest Close Since June 17, 2008! (Charts) *Will budget deficits & cuts stop the rally?*

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S&P 500 at highest close since June 17, 2008!
Will federal, state, and municipal budget deficits and cuts stop the rally?

S&P 500 Overview

S&P 500 The S&P 500 rallied again this past week to close at 1343.01 on Friday, February 18, 2011. The S&P 500, SPX, was up +1.04% and +13.86 for the week, is up +4.42% for February, was up +2.26% in January, and is up +6.79% for 2011. SPX is up +98.51% and +666.48 since the March 9, 2009 market bottom which was 711 days ago. The SPX closing at 1343.01 on Friday, February 18, 2011 is a multi-year closing high, the highest close since the closing of 1350.93 on June 17, 2008. The current closing continues above the closings of 1300.68 on August 28, 2008 and 1305.31 on August 11, 2008, which was a rally peak. The current closing is also above the June 19, 2008 close of 1342.83. The S&P 500 has gained 20 of the last 25 weeks (beginning with the week ended Friday, September 3, 2010).

Volatility The VIX closed the week on Friday, February 18, 2011 at a higher 15.69. The VIX continues below the 20, 25, 50, 100, and 200 day simple moving averages. The descending 50d sma crossed below the descending 100d sma on August 23, 2010, a Death Cross, and below the mostly level 200d sma on October 8, 2010, another Death Cross. The descending 100d sma crossed below the mostly level 200d sma - a Death Cross - on November 11, 2010. VIX continues in both an intermediate term and long term bear market. 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 Big Question What happens now? Up, Down, Sideways?

Economy Overall, the USA & Global economic data since October 2010 has been very encouraging. We continue with our assessment and statement from prior weeks: The economic data appears to show the recovery is over and expansion has begun in both the Global and USA economies. Much of the economic data is now at pre-Great Recession peaks and highs, not post-Great Recession peaks and highs. For example, the USA 2010 GDP (advance estimate) was $14.66 trillion, which is 1) the highest ever and 2) higher than the 2008 peak of $14.37 trillion. The 2009 GDP dipped to $14.12 trillion as the Great Recession was in full force. In addition, there have been 6 consecutive quarters of growth in the USA GDP QoQ and Q4 2010 annualized is $14.87 trillion, approaching $15 trillion. Of course, there is continued uncertainty over the sustainability of the "recovery" but no indication yet that there has been any slowing of economic growth, activity, and output QoQ (Q1 2011 compared to Q4 2010). The USA is not without economic and financial problems, of course, these are noted here [USA & Global Economy: Recovery Continued in January (GDP Charts) *Monthly Economic Review*]. Those problem areas noted plus the federal, state, and municipal budget deficits and cuts could stop the USA economic expansion and therefore stop the S&P 500 rally.

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. Exclusive of periodic EU sovereign debt crises, Arab uprisings, or any other international crisis short of all-out war, the seeming vagaries of the short-term market are mostly profit-taking and consolidation on pullbacks, not a change in the long term, or even intermediate term, upward trend. These international crises 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 and so far there has been no indication of this.

While a correction and pullback is inevitable, we predicted the SPX had an upside bias to 1300 - 1305, which was the peak of the August 2008 rally, then to at least 1322, then to 1343. The S&P 500 arrived at these levels and exceeded. We then predicted the S&P 500 will ultimately reach 1400 if Q1 2011 economic growth data begins showing Q4 2010 has been exceeded. This appears possible. The hurdles ahead are 1350-1351, and 1360-1362, which are more June 2008 closings. Ultimately is June 5, 2008 benchmark closing of 1404. There is much resistance ahead and pullbacks, corrections, and consolidations are probable.

Q4 2010 corporate earnings, Q4 USA economic growth, and Q4 global economic growth have exceeded Q3 2010 and has propelled the S&P 500 above the 1300 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 1427 closing on May 19, 2008). A Q1 2011 GDP of less than 3% would probably halt the SPX short and intermediate term uptrend and possibly the long-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 at Highest Close Since June 17, 2008!
+666 points in 711 days since the March 9, 2009 cyclical closing low of 676.53!

S&P 500 Weekly Chart Below is the SPX weekly chart from the week ended January 18, 2008 to the current close of 1343.01 on February 18, 2011. This chart illustrates the applicable price interactions at 1329 and above up to the 1427 closing and rally peak on May 19, 2008 . A monthly chart is included lower on this page for an even longer-term perspective.

Noteworthy Closing Prices
Current Close: 1343.01
2011 High: February 18 1343.01
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 does not show 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 None of the moving averages are resistance. The only current resistance is the February 18 intraday high of 1344.07. Long term resistance was noted earlier in this post: 1350-1351, 1360-1362, and finally 1400-1404.

Support The 1328-1332 and then 1320-1325 area are first support. The 20 day simple moving average of 1313.29 is also support. The 1304-1307 area is next support. Below is key support is the benchmark and psychological price of 1300 which is not in play. Further below is support at the 50 day simple moving average of 1283.27. Next is strong support at 1276. There are multiple levels of support below the current price.

Moving Averages SPX is above all the simple moving averages monitored: 20d, 25d, 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 February 18, 2011 multi-year closing high of 1343.01. Of course, SPX is at this downtrend line just created.

Relative Strength Index (RSI) The RSI 14 day = 85.55 is overbought, descending, and it appears at least a short term consolidation, if not a pullback and correction, is imminent. Peaks in the last year have been in the high 80s and about 90.  The recent low of 35.43 (oversold) on November 26, 2010. 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 = 70.73 is marginally overbought, ascending, 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 is now short term overbought and intermediate term marginally overbought which may set up a short term consolidation.

MACD (12,26,9) The MACD = +1.29 is ascending and has been positive for 11 consecutive trading days after being negative 12 consecutive trading days. 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 1202.07 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 2010 and has continued above since.

Conclusion The SPX reached and exceeded the 1300-1305 benchmark and psychological price. A correction, pullback, consolidation may occur before additional gains upwards to 1350. We maintain there is an upside bias for the S&P 500 to 1350 and 1400. The intermediate term trend continues bullish and the long term trend continues bullish. Ongoing overall positive USA and Global economic news plus recent 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 April 1999. The chart includes all historical price interaction with the current SPX price. SPX has a long history of interactions with 1300, and 1400, 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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