S&P 500 The S&P 500 closed the shortened Easter holiday week at 1337.38 on Thursday, April 21, 2011. The S&P 500, SPX, was up +1.34% for the week, is up +0.87% for April, and is up +6.34% for 2011. SPX is up +97.68% since the March 9, 2009 market bottom which was 773 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 -0.42% below. The current close is 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 Thursday, April 21, 2011 at 14.69, down a 3rd consecutive week. This is the lowest close since June 21, 2007 (14.21)! VIX continues below the 20, 25, 50, 100, and 200 day simple moving averages. The slightly descending 50d sma 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. Both the intermediate term and long term indicators continue bearish.
The Big Question What happens now? Up, Down, Sideways?
Oil, Libya, Earthquake, Debt First concern for 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 ended April 22 at $112.29 and $124.04, respectively. Persistent higher gas prices is now becoming a drag on USA and Global economic growth. Second concern has been the civil war in Libya plus other uprisings in the Middle East, which then affects the oil prices, the first concern. 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. Fourth concern is now the USA debt of $14+ trillion, the heated political and social debate, and the S&P cutting the USA to a negative outlook for sovereign credit.
USA and Global Economy Overall, the USA & Global economic data since the 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, although a small positive bounce was reported so far in April. 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 (in general) has shown a slowing of the expansion, both for the USA and Global economies. Up to a point, there is remarkable resiliency in both the USA and Global expansion absorbing higher oil prices.
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 bulls, aka greed and optimism, rallied this past week on positive corporate earnings and economic data, which held the bears, aka fear and pessimism, in check. The ongoing Middle East uprisings and resulting higher oil prices, impairment of the Japanese economy by the earthquake, periodic EU sovereign debt crises, and the USA fiscal deficit and debt news had resulted in the S&P 500 taking a beating as each event occurred. 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 some indications that both USA and Global growth is slowing, expanding at a slower rate.
S&P 500 Macro View The SPX continues above the 1300 - 1305 area, which was the closing peak of the August 2008 rally. The SPX is just below the February 18, 2011 multi-year closing high of 1343. The S&P 500 was propelled upwards for the past week, but this is short-term Q1 earnings and economic data momentum. All negative news is also priced in and the SPX continues above the 20 day average, 1323. The S&P 500 could ultimately reach 1343 and then upwards towards 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 overall March economic data is showing growth, but not an increasing expansion. Bottom Line: Q1 2011 corporate earnings could still 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 optimism generated by Q1 2011 corporate earnings peak and fade, it is questionable there is any additional impetus to hold the S&P 500 near, at, or above 1343 and onwards toward 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. The BEA third estimate for Q4 2010 was disappointing, in our view, at +3.1%. Q4 was to be the big quarter for the USA, with a possible, if not probable, dip in Q1 as holiday consumer spending, and some optimism, faded. With the higher oil prices and ongoing international crises, we now estimate the USA GDP for Q1 2011 at a maximum +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 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 December 22, 2010 to the current close. This chart illustrates recent price interactions, including with the February high and March low.
Noteworthy Closing Prices
Current Close: 1337.38
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: strongly ascending 25d sma > slightly ascending 50d sma since 4-21-11, first time since 3-25-11, neutral/bullish
Long Term Trend: SPX > 10 month ema = 1243.16, bullish
Key Resistance: sub-peak intraday high 1339.46, multi-year peak 1343.01, multi-year intraday high 1344.07
Key Support: 1335-1336 recent peak, 20d avg 1323, 50d avg 1316, 1305, 1300
Moving Averages: continues 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: above since 4-21-11, 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 = 53.22 is reasonable, level
RSI 28 day = 59.59 is reasonable, ascending
MACD (12,26,9) = +0.18, continues ascending
Conclusion We continue bullish short-term, bearish intermediate term, and bullish long term. All is contingent on oil prices, in our estimation, especially for the long-term outlook. The SPX has rallied and negated almost all prior losses resulting from the global turbulence and is now just -0.42% below the February 18 multi-year high. USA and Global economic data to-date for March has generally dipped and was not as robust as February, indicating a slowing of the economic expansion. Consumer confidence has dropped on rising oil prices, as expected, although there was a small positive bounce in April. 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 April earnings season rally 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 continues to appear imminent but both ongoing positive economic data and strong Q1 2011 earnings will be necessary to hold and sustain a new multi-year high above 1343. The intermediate term trend indicator continues neutral/bullish 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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