Friday, May 13, 2011

S&P 500 Drops Below 20-Day Average (Chart) *Down -1.89% in May*

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The EU debt crisis resurfaced again this month as the debt of Greece, Ireland, and Portugal will be a higher percentage of GDP than originally projected.

S&P 500 Overview

S&P 500 The S&P 500 closed the week at 1337.77 on Friday, May 13, 2011. The S&P 500, SPX, was down -0.18% for the week, is down -1.89% for May, and is up +6.37% for 2011. SPX is up +97.74% since the March 9, 2009 market bottom which was 795 days ago. The SPX closing at 1363.61 on Friday, April 29, 2011 was a multi-year closing high, the highest close since the closing of 1404.05 on June 5, 2008. SPX is now -1.89% below that multi-year closing. That closing exceeded the June 6, 2008 closing of 1360.68. The current close is well 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, May 13, 2011 at 17.07, down -7.23% for the week. VIX continues above the 20 day moving average which is support. VIX continues below the 50, 100, and 200 day simple moving averages. The now slightly descending 50d sma regained the now mostly level 100d sma on March 22, 2011 but remains below now descending 200d sma since October 8, 2010, a Death Cross. The now mostly level 100d sma crossed below the now 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?

Global and USA Uncertainties First concern for weeks has been high oil prices because of the Libyan revolution and other Arab uprisings. U.S. crude and Brent crude up down for the week ended May 13, 2011 at $99.65 and $113.84, respectively. Persistent higher gas prices have become a drag on USA and Global economic growth. Second concern has been the civil war in Libya plus other uprisings in the Middle East disrupting oil supplies, 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 have begun to show in economic output both for Japan and on the worldwide economy. Fourth concern is now the USA funded debt of $14+ trillion, the heated political and social debate, and the S&P cutting the USA to a negative outlook for sovereign credit. Fifth concern is the EU sovereign debt crisis, which waxes and wanes in its effect on equity and bond markets. Sixth concern, a medium and long term uncertainty, is the growing demand by emerging national economies (e.g. BRIC) for commodities which then increases prices.

USA and Global Economy Overall, the USA & Global economic data since the fourth quarter 2010 continues to be encouraging, but below earlier expectations. The past 3 weeks of economic data have been disappointing and indicate the expansion is slowing. The extent of the negative impact of sustained higher oil prices and global turmoil is being shown in economic data. Consumer sentiment is cautious and continues at historically low levels. 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 and April economic data (in general) showed a slowing of the expansion, both for the USA and Global economies. April economic data is revealing the expansion is slowing even more. Up to a point there is remarkable resiliency in both the USA and Global expansion absorbing higher oil prices and crises, but we are concerned in a another month or two the expansion will stall.

The Future We have pulled out the Magic 8 Ball, which is becoming a little more clear, to divine what lies ahead for the S&P 500. The bears, aka fear and pessimism, and the bulls, aka greed and optimism, have reach a standoff presently, but we feel the bears may have the advantage. Corporate earnings season, which was positive, is over and the economic data is overall negative. The deciding factor in what stalls the S&P 500 Post-Great Recession Rally will be slower USA and Global economic growth. Both the USA and Global economic 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 below the February 18, 2011 prior multi-year closing high of 1343, which is key resistance. Above that is the April 29, 2011 multi-year closing high of 1363Bottom Line: As optimism generated by Q1 2011 corporate earnings fade, it is doubtful there is any additional impetus to hold the S&P 500 near, at, or above 1400.

USA Q1 2011 and Q2 2011 Q4 2010 corporate earnings, USA economic growth, and global economic growth exceeded Q3 2010 and propelled the S&P 500 above the 1300 benchmark. The U.S. Bureau of Economic Analysis final estimate for Q4 2010 was disappointing, in our view, at +3.1%. The BEA Q1 2011 advance estimate of +1.8% is borderline dismal. Q4 was to be the big quarter for the USA, with a dip in Q1 as holiday consumer spending, and some optimism, faded. This has happened more than we expected. With the higher oil prices and ongoing international crises, we estimated the USA GDP for Q1 2011 at a maximum +3.0%, about a break-even economy for jobs growth. We also estimated Q1 2011 corporate earnings should meet and exceed Q4 2010 in general. The Q1 2011 economic data indicates the USA and Global economic expansion slowed, but did not stall. The Q2 2011 economic data to-date indicates the USA and Global economic expansion has slowed further in April, but has not stalled.

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 February 18, 2011 to the current close. This chart illustrates recent price interactions, including with the February high and March low.

Noteworthy Closing Prices
Current Close: 1337.77
2011 High: April 29 1363.61
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: ascending 25d sma greater than leveling off 50d sma since 4-21-11, neutral/bullish
Long Term Trend: SPX greater than 10 month ema = 1264.26 since September 2010, bullish
Key Resistance: 20d avg 1342, prior multi-year high 1343, multi year high 1364, multi-year intraday high 1371
Key Support: recent 1335-1337, recent peak 1331, 50d avg 1323
Moving Averages: now below 20d, continues above 20d, 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 4-29-11, line from 10-9-07 all-time closing high of 1565.15 down thru the 4-29-11 multi-year closing high of 1363.61
RSI 14 day = 51.13 is reasonable, descending
RSI 28 day = 51.29 is reasonable, descending
MACD (12,26,9) = -1.80, descending

Conclusion We continue neutral to bearish short-term, bullish but beginning to lean neutral for the intermediate-term, and bullish long-term. All is contingent on oil prices, in our estimation, especially for the intermediate-term and long-term outlook. The SPX has pulled back from the 4-29-11 multi-year closing high of 1363 and now has dropped below the 20-day average this past week. The April earnings season rally is over and a May correction and pullback is in process. As we noted last eek, a test of the 50 day average appears probable. The test of the benchmark price of 1400 did not occur during earnings season as we expected and it is doubtful the S&P 500 can hold and sustain a new multi-year high above 1400The intermediate-term trend indicator is now 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.

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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