Saturday, March 26, 2011

S&P 500 Regains 1300! (Chart) *Above 20 & 50 day averages*

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USA GDP was +3.1% in 2010, -2.6% in 2009, 0.00% in 2008, and +1.9% in 2007

S&P 500 Overview

S&P 500 The S&P 500 was up this past week to close at 1313.80 on Friday, March 25, 2011. The S&P 500, SPX, was up +2.70% for the week, is down -1.01% for March, and is up +4.47% for 2011. SPX is up +94.20% since the March 9, 2009 market bottom which was 746 days ago. The SPX closing at 1343.01 on Friday, February 18, 2011 was a multi-year closing high, the highest close since the closing of 1350.93 on June 17, 2008. The current closing is -2.17% below. The current close is now above the closings of 1300.68 on August 28, 2008 and 1305.31 on August 11, 2008, which was a rally peak.

Volatility The VIX closed the week on Friday, March 25, 2011 significantly down at 17.91. VIX dropped below the 20, 25, 50, 100, and 200 day simple moving averages. The ascending 25d sma did regain the ascending 50d sma on February 22, 2011, which is a bullish sign. The ascending 50d sma tenuously regained the descending 100d sma on March 22, 2011 but remains below descending 200d sma since October 8, 2010, a Death Cross. The descending 100d sma crossed below the descending 200d sma - a Death Cross - on November 11, 2010. VIX appeared to be establishing a long term bull market in recent weeks, but is currently bearish. The intermediate term continues bullish.

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

Oil, Libya, and Catastrophic Earthquake First concern this past week were high oil prices because of the Libyan revolution and other Arab uprisings. U.S. crude and Brent crude closed up for the week on March 25 at $105.40 and $116.02, respectively. Persistent higher gas prices will be a drag on USA and Global economic growth. Saudi Arabia, Kuwait, Nigeria, et. al. are and/or will replace most, if not all, the lost production from Libya. So far it's been Big Oil and the oil producing countries that have benefited from the Middle East turmoil while consumers worldwide pay the price, yet supply has not materially decreased. Second concern has been the civil war in Libya plus other uprisings in the Middle East, which then affects the oil prices. Third concern was the catastrophic earthquake that hit Japan, the world's third largest economy. The resulting nuclear radiation crisis and the economic impact of this ongoing crisis on Japan and possible global implications has yet to be fully determined and realized.

USA and Global Economy Overall, the USA & Global economic data since fourth quarter 2010 continues to be very encouraging. The extent of the negative impact of sustained higher oil prices will be in monthly economic data soon. The expected plunge in consumer sentiment is already being reported. 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.

USA GDP For example, the USA 2010 GDP (third estimate) was $14.66 trillion, which is 1) the highest ever and 2) higher than the 2008 peak of $14.37 trillion. In addition, there have been 6 consecutive quarters of growth in the USA GDP QoQ and Q4 2010 annualized is +3.1% and $14.87 trillion (third estimate). 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: Expansion Continued in February (GDP Charts) *Monthly Economic Review*]. The USA and Global problems noted and now higher oil prices could stop the USA economic expansion and therefore halt the S&P 500 rally indefinitely.

The Future We have pulled out the Magic 8 Ball, which of late has been murky, to divine what lies ahead for the S&P 500. The bears, aka fear and pessimism, continue to have the short term momentum and are have been trumping the bulls, aka greed and optimism, in the equity markets until this past week. The ongoing Middle East uprisings, impairment of the Japanese economy by the earthquake, and periodic EU sovereign debt crises have resulted in the S&P 500 taking a beating as yet another crisis appears. The deciding factor in what stalls the S&P 500 Post-Great Recession Rally for the intermediate term will be slower USA and Global economic growth. So far there has been no clear indication of this.

S&P 500 Macro View While a correction and pullback was known to be inevitable, and a short-term pullback has occurred, the SPX is now above the 1300 - 1305 area, which was the peak of the August 2008 rally. As these current crises fade and barring a Q1 2011 slowdown in the USA and Global economies, the SPX could continue upwards to 1322, then to 1343. The S&P 500 arrived at these levels and exceeded earlier in 2011. The S&P 500 can ultimately reach 1400 if Q1 2011 economic growth data begins showing Q4 2010 has been exceeded in Q1 2011. This continues to appear possible, but the probability is decreasing and March economic data will probably not be as robust as February data.

USA Q1 2011 Q4 2010 corporate earnings, Q4 USA economic growth, and Q4 global economic growth exceeded Q3 2010 and propelled the S&P 500 above the 1300 benchmark. We overestimated the USA GDP for Q4 2010 at +3.4% QoQ minimum. The BEA third estimate was disappointing, in our view, at +3.1%. With the higher oil prices in and other international crises, we now estimate the USA GDP for Q1 2011 at +3.0%, about a break-even economy for jobs growth. We also estimate Q1 2011 corporate earnings should meet and exceed Q4 2010 in general. However, we are mildly concerned that the Q1 2011 economic data may indicate that at least the USA economic "recovery", if not the global economic "recovery", has slowed, not stalled. JPMorgan lowered their USA Q1 2011 GDP estimate from +3.5% to +2.5%, which seems extreme. A lower USA Q1 2011 GDP would halt the additional momentum 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 Global economies plus the USA financial system are posted at Boom Doom EconomyFinancial Controls, and Baidu Planet.

S&P 500 Daily Chart

S&P 500 Daily Chart Below is the SPX daily chart from December 21, 2010 to the current close of 1313.80 on March 25, 2011. This chart illustrates all recent price interactions, including with the February high and March low.

Noteworthy Closing Prices
Current Close: 1313.80
2011 High: February 18 1343.01
2011 Low: March 16 1256.88
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

S&P 500 Chart Review
Intermediate Term Trend: descending 25d sma < ascending 50d sma on 3-25-11, first time since 9-24-10, neutral/bearish
Long Term Trend: 10 month ema = 1220.03, bullish
Resistance: 1320-1321, 1325-1330, recent peak 1343
Support: 1310, 1306, 50d avg 1306, 20d avg 1302, 1300 
Moving Averages: above 20d, 25d, 50d, 100d, 200d sma's
Uptrend Line: above, from 3-9-09 closing low of 676.53 up thru the 7-2-10 closing low of 1022.58
Downtrend Line: below, from 10-9-07 all-time closing high of 1565.15 down thru the 2-18-11 closing high of 1343.01
RSI 14 day = 51.14 is reasonable, ascending
RSI 28 day = 46.96 is reasonable, level
MACD (12,26,9) = +1.40, ascending

Conclusion The SPX rallied this past week but has dropped 3 of the last 5 weeks on the global turbulence. Overall USA and Global economic data has been very good in Q1 2011, but March data is expected to dip and/or not be as robust as January and February. Consumer confidence has dropped on rising oil prices, as expected. The S&P 500 rallied above 1300 and the 20 and 50 day simple moving averages on Thursday, March 24. If the global uncertainty continues, the ascending 100 day simple moving average (1267.79) could be tested again. We have maintained there is an upside bias for the S&P 500 to 1350 and 1400. This upside bias has vanished until global uncertainty has abated. Hopefully the SPX will continue above 1300 this next week. The intermediate term trend is now neutral/bearish and the long term trend continues bullish.

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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