Saturday, July 9, 2011

S&P 500 Rally Stalls on USA Unemployment Data (Chart) *Small +0.31% gain for week*

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The U.S. Bureau of Labor Statistics reported 14.09 million Americans were unemployed


S&P 500 The S&P 500 closed the week at 1343.80 on Friday, July 8, 2011. The S&P 500, SPX, was up a small +0.31% for the week, is up +1.75% for July, was down -1.83% for June, and is up +6.85% for 2011. SPX is up +98.63% since the March 9, 2009 market bottom which was 851 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 -1.45% below that multi-year closing. That closing exceeded the June 6, 2008 closing of 1360.68. The current close continues 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 VIX closed the week on Friday, July 8, 2011 at 15.95, up +0.50% for the week. VIX continues below the 20, 50, 100, 200-day moving averages. The now slightly ascending 50d avg dropped below the now mostly level 100d average on May 23 - a third Death Cross. The 100d avg crossed below the now descending 200d avg on November 11, 2010 - a second Death Cross. The 50d avg has remained below 200d avg since October 8, 2010 - the first Death Cross.

S&P 500 Macro View The SPX has rallied above 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 now at the February 18, 2011 prior multi-year closing high of 1343, which is current support. The dismal Bureau of Labor Statistics report for June 2011 has stalled the rally and a test of the April 29, 2011 multi-year closing high of 1363, which is key, and final, current resistance, has not occurred.

Economic and Market News Information about the USA and Global economies plus the USA financial system are posted at Boom Doom EconomyFinancial ControlsBaidu Planet, and Neo Solomon.


S&P 500 Daily Chart Below is the SPX daily chart from December 22, 2011, to illustrate price interactions with the February highs, March lows, April highs, and June lows.

Noteworthy Closing Prices
Current Close: 1343.80
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 avg less than slightly descending 50d avg since 4-21-11; SPX is above 25d and 50d avgs, neutral/tenuously bullish
Long Term Trend: SPX greater than 10 month ema = 1288.01 since September 2010, tested in June, bullish
Key Resistance: multi-year closing high 1363-1364
Key Support: prior multi-year closing high 1343, 50d avg 1317, 100d avg 1317, 20d avg 1298, 200d avg 1272
Moving Averages: above rising 20d, slightly descending 50d, slightly ascending 100d; ascending 200d avg
Uptrend Line: above since 6-28-11; line from 3-9-09 cyclical closing low of 676.53 up thru the 7-2-10 closing low of 1022.58
Downtrend Line: below as of 7-8-11, had been 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 = 74.28 is overbought, descending
RSI 28 day = 52.11 is reasonable, descending
MACD (12,26,9) = +8.73, descending, 7-7-11 +9.45 was multi-year high

Conclusion The dismal June 2011 Employment Situation Summary by the U.S. Bureau of Labor Statistics stopped the rally on Friday, July 8, 2011 and the S&P 500 dropped and found support at the 2-18-11 prior multi-year high of 1343. The interesting twist to this scenario is that corporate earnings season now begins on Monday, July 11, 2011 with Alcoa reporting after market close. Exclusive of additional dismal USA and Global economic data and new developments in the EU Sovereign Debt Crisis, earnings season should provide support for the S&P 500. Longer-term, all is contingent on oil prices, in our estimation. 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 did not test the 4-29-11 multi-year closing high of 1363 on Friday, July 8 as was anticipated if the BLS employment report was bullish. Instead it was discouraging, to say the least. A test and eventual upside breakout of the multi-year closing high of the multi-year closing high of 1363.61 does not appear imminent. The intermediate-term trend indicator has continues to neutral/tenuously bullish. The long-term trend continues bullish and has continued overall bullish since September 2010. We are now neutral to 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.

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 actual and potential supply disruptions. U.S. crude and Brent crude closed the week up at $96.20 and $118.30, respectively. Oil prices continue below the highs of late April and early May, but persistent higher oil prices have become a drag on USA and Global economic growth. Oil prices have rallied above the intermediate-term lows reached in late June and increased for 2 consecutive weeks.
2) Second concern is the deteriorating USA economic data and recent dismal employment report. This appears to be mostly the result of the first concern, persistent higher oil prices. Consumer confidence continues at historically low levels, the unemployment and underemployment rates continue 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 (and rising on this list to first by August 2) is now the USA funded debt of $14+ trillion, the debt ceiling deadline of August 2, and the heated political and social debate. 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 day and a bi-partisan resolution of this problem does not currently appear probable.
4) Fourth 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. The sovereign debt and fiscal effectiveness of Greece has been in the forefront and the government has approved yet more austerity measures to buy yet more time and to receive yet another bailout. 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.
5) Fifth concern is the catastrophic earthquake and tsunami that hit Japan, the world's third largest national economy. The resulting nuclear radiation crisis and the negative economic impact of this ongoing crisis and global implications have affected Japan, China, USA, et. al. Japan is officially in a recession as of the quarter ended 3-31-11 with a negative GDP for 2 consecutive quarters. However, Japanese economic output is rebounding rapidly from the crisis.
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) Seventh concern is the Federal Reserve policies and the end of quantitative easing (QE2) as of June 30, 2011. The Fed has ceased most monetary intervention and support for the second time since the Financial Crisis in the autumn of 2008. The extent of this impact, if any and 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 months: The economic data appears to show the recovery is over and expansion has begun in both the Global and USA economiesHowever, recent economic data is becoming discouraging and some even now 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 bulls, aka greed and optimism, had rallied big time recently and were singing "Happy Days Are Here Again" until the Bureau of Labor Statistics June 2011 Employment Situation Summary report. The bears, aka fear and pessimism, had dominated the month of June and are regaining some prominence. The economic data is overall negative. The next corporate earnings season will begin on Monday, July 11. This should provide some support for the S&P 500 as there should be overall 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. Earnings season starts with Alcoa on July 11 and should provide support for the S&P 500, as long as USA economic data doesn't deteriorate significantly in July.

USA 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. February 2011 was about the peak of USA and Global economic growth. March 2011 brought rising oil prices plus the catastrophic tsunami to Japan. The U.S. Bureau of Economic Analysis Q1 2011 final GDP estimate of +1.9% was 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. Therefore, we estimate the Q2 GDP at below +2.0%.

U.S. Dollar The U.S. Dollar Index closed the week on Friday, July 8, 2011 at 75.43, up +1.02% for the week. The USDX rallied above the ascending 20-day and ascending 50-day averages this past week, but continues below the descending 100-day and descending 200-day moving averages. The USDX has been trading in a range since late March.


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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