S&P 500 The S&P 500 was down this past week on yet a higher Wall of Worry to close at 1279.20 on Friday, March 18, 2011. The S&P 500, SPX, was down -1.92% for the week, is down -3.62% for March, and is up +1.71% for 2011. SPX is up +89.08% since the March 9, 2009 market bottom which was 739 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 -4.75% below. The current close is below 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 18, 2011 significantly up at 24.44. VIX is above the 20, 25, 50, 100, and 200 day simple moving averages. The 25d sma did regain the 50d sma on February 22, 2011, which is a bullish sign. 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. However, the 50d sma is should regain the 100d sma this next week. VIX is establishing a long term bull market. The intermediate term is now 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 the week on March 11 at $101.07 and $114.49, 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 was 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 entire 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. For example, the USA 2010 GDP (second 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 +2.8% and $14.86 trillion (second 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, have the short term momentum and are currently trumping the bulls, aka greed and optimism, in the equity markets. The now 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 short term. 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 continues, the SPX is now below 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.
USA GDP 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 continue to estimate the USA GDP for Q4 2010 at +3.4% QoQ minimum. The BEA second estimate was a very disappointing, in our view, +2.8%. 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. 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.
S&P 500 Daily Chart Below is the SPX daily chart from December 20, 2010 to the current close of 1279.20 on March 18, 2011. This chart illustrates the applicable price interactions since late 2010.
Noteworthy Closing Prices
Current Close: 1279.20
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
Intermediate Term Trend: descending 25d sma > level 50d sma, tenuously bullish
Long Term Trend: 10 month ema = 1213.74, bullish
Resistance: 1290, 1295, 1300-1305, 50-day average 1303, 20-day average 1306, then 1325
Support: 1276-1277, 100-day average 1262, 1257-1260
Moving Averages: below 20d, 25d, 50d sma's, above 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 = 36.93 is oversold
RSI 28 day = 42.93 is reasonable, leaning oversold
MACD (12,26,9) = -6.15, ascending
Conclusion The SPX has dropped 3 of the last 4 weeks on the global turbulence. Overall USA and Global economic data has been very good. Consumer confidence has dropped on rising oil prices, as expected. The 100 day simple moving average and late December support held this past week. If the global uncertainty continues, the ascending 100 day simple moving average 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. The intermediate term trend continues tenuously bullish 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.
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