S&P 500 The S&P 500 closed the week at 1328.17 on Friday, April 8, 2011. The S&P 500, SPX, was down -0.32% for the week, is barely up +0.18% for April, was down -0.10% for March, and is up +5.61% for 2011. SPX is up +96.32% since the March 9, 2009 market bottom which was 760 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 -1.10% 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, just before the USA financial crisis and market crash.
Volatility The VIX closed the week on Friday, April 8, 2011 up at 17.87. VIX continues below the 20, 25, 50, 100, and 200 day simple moving averages. The mostly level 50d sma tenuously regained the slightly descending 100d sma on March 22, 2011 but remains below descending 200d sma since October 8, 2010, a Death Cross. The slightly descending 100d sma crossed below the descending 200d sma - a Death Cross - on November 11, 2010. VIX has appeared recently to be establishing a bull market in, but is currently bearish. The intermediate term continues tenuously bullish.
The Big Question What happens now? Up, Down, Sideways?
Oil, Libya, and Catastrophic Earthquake First concern for several weeks has been high oil prices because of the Libyan revolution and other Arab uprisings. U.S. crude and Brent crude closed up for the week on April 8 at $112.79 and $126.90, respectively. Persistent higher gas prices is now becoming 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 is the catastrophic earthquake that hit Japan, the world's third largest economy. The resulting nuclear radiation crisis and the negative economic impact of this ongoing crisis and possible global implications are beginning to show in economic output both for Japan and on the worldwide economy.
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 and global turmoil is being shown in March data. 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 in February was at Pre-Great Recession peaks and highs or post-Great Recession peaks and highs. However, March economic data has shown a slowing of the expansion, both for the USA and Global economies.
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 the Q4 2010 annualized was +3.1% and $14.87 trillion (third estimate). Of course, there is continued uncertainty over the sustainability of the "recovery" and the March data is showing a small slowing of economic growth, activity, and output MoM, from February to March. It now appears the QoQ GDP growth (Q1 2011 compared to Q4 2010) will not exceed the prior QoQ growth of +3.1%. The USA is not without economic and financial problems, of course, these are noted here [USA & Global Economy: Expansion Continued in March (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 USA GDP appears to be slowing to a maximum of +3.0% QoQ for Q1 2011.
The Future We have pulled out the Magic 8 Ball, which of late has been murky lately, to divine what lies ahead for the S&P 500. The bulls, aka greed and optimism, had rallied the prior 2 weeks and negated much of the losses inflicted by the bears, aka fear and pessimism. This past week was basically flat for the S&P 500. The ongoing Middle East uprisings, impairment of the Japanese economy by the earthquake, and periodic EU sovereign debt crises had resulted in the S&P 500 taking a beating as each crisis unfolded. 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. There are now indications that both USA and Global growth is slowing, expanding at a slower rate.
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 has rallied and is above 1322 and below 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 is not showing increasing expansion. Bottom Line: Q1 2011 corporate earnings may push the S&P 500 upwards above 1343 and towards 1400, but the USA Q1 2011 GDP slowed considerably in March as high oil prices and global turmoil began to weigh heavily. As the optimism of Q1 2011 corporate earnings peak and fade, it is questionable there is any additional impetus to hold the S&P 500 at or above 1400.
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 ongoing international crises, we now estimate the USA GDP for Q1 2011 at a maximum +3.0% [erroneously noted as a minimum last week], 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 now concerned that the Q1 2011 economic data will indicate that at least the USA economic "recovery", if not the global economic "recovery", has slowed, not stalled. 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 February 11, 2011 to the current close. This chart illustrates recent price interactions, including with the February high and March low.
Noteworthy Closing Prices
Current Close: 1328.17
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
Intermediate Term Trend: mostly level 25d sma < ascending 50d sma since 3-25-11, first time since 9-24-10, neutral/bearish
Long Term Trend: SPX > 10 month ema = 1241.48, bullish
Resistance: 1330s in general, 1340, recent multi-year peak 1343
Support: at support, 1320-1321, 50d avg 1313, 1310, 20d avg 1309, 1300
Moving Averages: above all averages monitored: 20d, 25d, 50d, 100d, 200d sma's
Uptrend Line: above since 8-31-10, line from 3-9-09 closing low of 676.53 up thru the 7-2-10 closing low of 1022.58
Downtrend Line: below since 4-6-11, pinned April 1-5 and 7-8, line 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 = 72.46 is overbought, descending
RSI 28 day = 54.40 is reasonable, ascending
MACD (12,26,9) = +2.65, descending
Conclusion Short-term we are bullish, intermediate term we are bearish, and long term we are bullish. All is contingent on oil prices, in our estimation. The SPX rallied and almost negated prior losses resulting from the global turbulence but is now -1.10% below the February 18 multi-year high. USA and Global economic data to-date for March dipped and was not as robust as February. Consumer confidence has dropped on rising oil prices, as expected. The S&P 500 has rallied back above 1300 plus the 20 and 50 day simple moving averages. We have maintained there is an upside bias for the S&P 500 to 1350 and 1400. This upside bias still exists through earnings season. However, if oil prices continue high into May, this will wipe out the earnings season rally by or in May. A May correction and pullback will ensue as more economic data is dragged down by high oil prices. A test of the multi-year high of 1343 appears imminent but both ongoing positive economic data and strong Q1 2011 earnings will be necessary for a new multi-year high above 1343. The intermediate term trend indicator is now neutral/bearish and the long term trend has continued bullish since September 2010.
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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