Matrix Markets: S&P 500 Drops 7 of Past 8 Weeks (Chart) *European debt crisis weighs on markets*

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The chronic and long-term European Debt Crisis continues to create uncertainty for world markets

S&P 500 Overview

S&P 500 The S&P 500 closed the week at 1268.45 on Friday, June 24, 2011. The S&P 500, SPX, was down slightly -0.24% for the week, is down -5.71% for June, and is up just +0.86% for 2011. SPX is up +87.49% since the March 9, 2009 market bottom which was 837 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 -6.98% below that multi-year closing. That closing exceeded the June 6, 2008 closing of 1360.68. The current close continues well below 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, June 24, 2011 at 21.10, down -3.43% for the week and snapping a 3-week string of gains. VIX rose again above the 200-day average this past week and continues above the 20, 50, and 100-day moving averages. The now ascending 50d sma dropped below the now mostly level 100d average on May 23 - a third Death Cross. The 100d sma crossed below the now descending 200d sma on November 11, 2010 - a second Death Cross. The 50d sma has remained below 200d sma since October 8, 2010 - the first Death Cross. The intermediate-term indicator continues bullish since Friday, June 3. The long-term indicator continues bullish.

U.S. Dollar The U.S. Dollar Index closed the week on Friday, June 24, 2011 at 76.21, up +0.99% for the week. The USDX continues above the ascending 20-day and 50-day averages, rose above the descending 100-day average this past week, and continues below the descending 200-day average.

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

Global and USA Uncertainties

1) First concern since March has been high oil prices resulting from the Libyan revolution and other Arab uprisings (Arab Spring) creating potential supply disruptions. U.S. crude and Brent crude closed the week down at $91.16 and $105.67, respectively. Oil prices are below the highs in May. Persistent higher gas prices have become a drag on USA and Global economic growth. The current downtrend in oil prices is welcome relief and hopefully will begin to mitigate the negative economic effects of the past months.

2) Second concern is now the deteriorating USA economic data. This appears to be mostly the result of the first concern, persistent higher oil prices. Consumer confidence remains at historically low levels, the unemployment rate continues high, the housing market is depressed, the financial system is still weak, and the recovery has slowed significantly. A double-dip recession is possible, but still does not appear probable. Continued inadequate (slow to very slow) economic growth is probable.
3) Third concern is the EU sovereign debt crisis, which waxes and wanes in its effect on equity and credit markets. This problem is chronic, systemic, and therefore a long-term issue. Currently the sovereign debt and fiscal effectiveness of Greece is in the forefront, but Italy is now becoming news and Portugal, Ireland, Spain, and even Belgium are in the near background. In addition, the peripheral Euro Zone countries, Eastern Europe, are ongoing sovereign debt problems.
4) Fourth concern (and rising on this list to first by August 2) is now the USA funded debt of $14+ trillion and the heated political and social debate. Now Fitch has stated that the USA would be placed on "watch negative" if Congress did not raise the debt ceiling by August 2. The S&P cut the USA to a long-term negative outlook for sovereign credit and Moody's has warned the USA to resolve the debt ceiling political deadlock or a short-term negative outlook rating is imminent. In addition, if spending is actually cut by any material amount, this will negatively impact the economy (and already has), rightly or wrongly, regardless of political beliefs. August 2 is the deadline and a bi-partisan resolution of this problem does not currently appear probable.

5) Fifth concern is the catastrophic earthquake and tsunami 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. Japan is officially in a recession as of the quarter ended 3-31-11 with a negative GDP for 2 consecutive quarters.
6) Sixth concern, a medium-term and long-term uncertainty, is the growing demand by emerging national economies (e.g. BRIC) for commodities, including oil and food, which then increases prices for governments, businesses, and consumers worldwide. This is also dragging down USA and Global consumer sentiment.

7) A Seventh concern is the Federal Reserve policies and the end of quantitative easing (QE2) as of June 30, 2011. The Fed is ceasing most monetary intervention and support for the second time since the Financial Crisis in the autumn of 2008. The extent of this impact, much debated, will be seen later this summer. Hopefully, the negative impact will be minimal and then can be removed as a concern. Chairman Bernanke stated at the April Federal Reserve press conference that he thought it was unlikely that the end of quantitative easing would have any significant effect on markets or the economy.

USA and Global Economy Overall, the April, May, and June economic data has been disappointing and indicates the expansion is slowing significantly for the USA and to a lesser extent for the World. The extent of the negative impact of sustained higher oil prices and global turmoil is being shown in the economic data. 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. However, recent economic data is becoming discouraging and some even near-dismal. Robust expansion has down-shifted to slow, very slow, and even near-stalling in some cases. 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 that by the end of July the expansion could stall completely for the USA.

The Future We have pulled out the Magic 8 Ball, which is becoming more clear, and negative, to divine what lies ahead for the S&P 500. The bears, aka fear and pessimism are clearly having their concerns realized and trumping the bulls, aka greed and optimism. The economic data is overall negative. The next corporate earnings season will begin in early July, which should provide some support for the S&P 500 as there should be some positive earnings reports. 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 and therefore expanding at a slower rate. Until earnings season starts with Alcoa on July 11, there is insufficient positive force to drive the S&P 500 upwards significantly.

S&P 500 Macro View The SPX is below the 1300 - 1305 area, which was the closing peak of the August 2008 rally, just before the Financial Crisis in September 2008. The SPX is well 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 1363. Bottom Line: There is no positive impetus to rally the S&P 500 near, at, or above the April 29, 2011 multi-year high of 1363.

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. Now the S&P 500 is below that level. The U.S. Bureau of Economic Analysis final estimate for Q4 2010 was disappointing, in our view, at +3.1%. The BEA Q1 2011 final estimate of +1.9% is borderline dismal. The Q2 2011 economic data to-date indicates the USA and Global economic expansion has slowed further in April, May, and June and is near stalling.

Economic and Market News Information about the USA and Global economies plus the USA financial system are posted at Boom Doom Economy, Financial Controls, and Baidu Planet.

S&P 500 Daily Chart

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 April high and March low.

Noteworthy Closing Prices

Current Close: 1268.45

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: plunging 25d sma less than descending 50d sma since 4-21-11; SPX is well below 25d and 50d sma's, very bearish

Long Term Trend: SPX greater than 10 month ema = 1266.13 since September 2010, tested past 2 weeks, tenuously bullish

Key Resistance: 20d avg 1290, 100d avg 1316, 50d avg 1318

Key Support: 1265, 200d avg 1263, closing low 3-16-11 1256

Moving Averages: continues below plunging 20d, sharply descending 50d, slightly descending 100d; continues just above ascending 200d sma

Uptrend Line: continues testing, below since 6-24-11; line from 3-9-09 cyclical closing low of 676.53 up thru the 7-2-10 closing low of 1022.58

Downtrend Line: well 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 = 43.21 is reasonable, mostly level

RSI 28 day = 38.31 is oversold, descending

MACD (12,26,9) = +0.92, descending

Conclusion We continue bearish short-term (next 2 weeks), continue neutral to slightly bullish for the intermediate-term (6 months), and continue bullish long-term (12 months). All is contingent on oil prices, in our estimation, especially for the intermediate-term and long-term outlook, and oil prices are now easing downwards. Persistent high oil prices will ruin everything and a material decrease in federal spending will be the tipping point for a complete stalling of the USA economic expansion into a recession. The USA is in a fiscal and economic quandary that has been years in the making by both political parties, but a drastic cut in federal spending, as opposed to a phasing down, would be harmful. The SPX has pulled back significantly from the 4-29-11 multi-year closing high of 1363. A test of the 2011 closing low of 1256.88 (March 16) continues to appear imminent. In addition, a continuing test of the ascending 200-day moving average of 1263 appears inevitable in the next 2 weeks. The most probable short-term outlook continues bearish. The intermediate-term trend indicator continues bearish. The long-term trend is tenuously bullish and has continued bullish since September 2010. The hope is that corporate earnings season beginning July 11 will become support plus rally the equity markets to some extent.

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.