Saturday, August 6, 2011

S&P 500 Crashes on USA & Global Uncertainties! (Chart) *USA loses AAA credit rating*

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S&P downgraded the USA AAA credit rating to AA+, outlook negative


S&P 500 The S&P 500 closed the week at 1199.38 on Friday, August 5, 2011. The S&P 500, SPX, was down -7.19% for the week, down -10.83% for the past 2 weeks, is down -7.19% for August, was down -2.15% for July, and is down -4.63% for 2011. Down, down, down... The negative USA plus Global fiscal and economic uncertainties have overwhelmed any good news, such as the positive earnings reports. SPX is up +77.28% since the March 9, 2009 market bottom which was 879 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 -12.04% below that multi-year closing. That peak closing of 1363.61 exceeded the June 6, 2008 closing of 1360.68. The current close is now far 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.

Notable S&P 500 Weekly Crashes The -92.90 and -7.19% crash this past week, the week ended August 5, 2011, is one for the record books. This was the largest drop in price since the week ended November 10, 2008, which was -200.01. This was the largest drop in percentage since the week ended November 21, 2008, which was -8.39%. By comparison, the previous weekly crash was the Flash Crash during the week ended May 7, 2010 and the declines were -75.81 and -6.39% for that week ended.

Correction Territory Some define a correction market and correction territory as -10% or more from the market peak, therefore, the SPX would be considered in a correction. The SPX is now -12.04% below the peak, the multi-year closing high of 1363.61 on Friday, April 29, 2011.

Volatility VIX closed the week on Friday, August 5, 2011 at an astronomical 32.00, up an alarm-bell ringing +82.65% for the past 2 weeks and at the highest close since June 4, 2010 (35.48). VIX is up +101.64% in the past 5 weeks, since the week ending July 1, 2011. The skyrocketing VIX has risen far above the 20, 50, 100, and 200-day moving averages. All previous Death Crosses noted have been negated.

U.S. Dollar The U.S. Dollar Index closed the week on Friday, August 5, 2011 at 74.70, up +0.65% for the week. The USDX continues below the 20, 50, 100, and 200-day moving averages. The USDX is now in the middle of a trading range that began in March 2011.

S&P 500 Macro View The SPX at 1199 has found support at the 1200 area. There is additional, significant support downwards to 1180 - 1178. If the S&P 500 drops below this support and approximately 1176, we would consider this a legitimate bear market. SPX tested this lower area intraday on Friday, August 5, 2011. SPX has dropped far below the 20, 50, 100, and 200-day averages.

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 (click chart to enlarge)

S&P 500 Daily Chart Below is the SPX daily chart since March 17, 2010 to illustrate recent price interactions with current trading.

Noteworthy Closing Prices
Current Close: 1199.38
2011 High: April 29 1363.61
2011 Low: August 5 1199.38
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: strongly descending 25d avg greater than descending 50d avg since 7-22-11; SPX is far below both 25d and 50d avgs, leaning bearish
Long Term Trend: SPX less than 10 month ema = 1264.23 beginning this past week, tested in June, bearish
Key Resistance: 1254-1260, 200d avg 1286, 1300, 50d avg 1301
Key Support: at support 1200, support continues downwards to 1180-1178
Moving Averages: below all major averages: 20d, 50d, 100d, 200d avgs
Uptrend Line: below since 7-28-11; 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 since 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 = 23.43 is very oversold, ascending
RSI 28 day = 38.36 is oversold, descending
MACD (12,26,9) = -14.22, descending, lowest since 9-30-09 (-149.85); multi-year high 7-7-11 (+9.45)


Conclusion The S&P 500 crashed on Thursday, August 4, 2011 on a variety of USA and Global uncertainties. In reviewing prior daily crashes, the crash close is normally not the bottom, but is the significant portion of the overall drop. SPX then continues downward some before the bottom is in. Oversold bounces occur and a consolidation begins developing for a few weeks. A rally generally ensues. Therefore, SPX at 1199 and support is probably not the bottom of the downtrend. The intermediate-term trend indicator is now leaning bearish. The long-term trend is now bearish. Our ultra long-term indicator that only occasionally comes into play is at 1176. SPX tested this intraday on Friday, August 5, 2011. If SPX breaks down below 1176, this could signal an intermediate-term to long-term bear market. We continue bearish for August, continue neutral to slightly bearish intermediate-term (6 months), and continue bullish long-term (12 months).

Disclosure & Portfolio 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. We continue to have no long equity positions, period.

THE BIG QUESTION What happens now? Up, Down, Sideways?

Global and USA Uncertainties
1) First Concern is now the USA short-term and intermediate-term economic and fiscal status. The bipartisan debt ceiling, budget, fiscal agreement ultimately accomplishes very little. The USA, notably the citizens and taxpayers, will be forced into austerity at some point. The economic indicators are dismal to near-abysmal and the risk of a double-dip recession is moderate. The fear of a double-dip recession is high and some parts of the economy are already in or near a recession and even a depression (e.g., housing market). Consumer confidence and sentiment is at historically low levels and unemployment and underemployment rates continue high. The GDP revisions revealed a deeper Great Recession and a less robust, slower recovery. On top of all this, S&P downgraded the USA credit from AAA to AA+.
2) Second 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 problems of Greece have been in the forefront and the current EU rescue proposal creates at least a technical default by Greece, reported 20% bondholder losses for banks. This will result in some insolvent banks to be bailed out. Regardless, the Greek government has approved yet more austerity measures to buy yet more time and to receive yet another bailout. Italy is next and is attempting to be proactive and preemptive. Portugal, Ireland, and Spain continue in the near background. In addition, the peripheral Euro Zone countries, Eastern Europe, are ongoing sovereign debt problems.
3) Third Concern is now the Global short-term and intermediate-term economic status. Economic growth continues slowing on a worldwide scale, but not as much as the USA and Eurozone.
4) Fourth Concern, a concern since March but dropping in intensity, 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 (Light Crude NYME) and Brent crude closed the week down significantly at $86.88 and $109.85, respectively. Oil prices are now well below the highs of late April and early May and now back to the pre-oil spike prices of February 2011. This should lessen the drag on USA and Global economic growth.
5) Fifth 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.
6) Sixth Concern, and lessening in intensity as the recovery continues, 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.

The Future
We have pulled out the Magic 8 Ball, which continues overall negative, to divine what lies ahead for the S&P 500. The bears, aka fear and pessimism, whipped the bulls, aka greed and optimism, this past week in one for the record books. The negative USA and Global fiscal and economic uncertainties have overwhelmed the positive earnings reports. Corporate earnings season had provided support for the S&P 500 with overall positive and encouraging earnings reports. Downshifting USA and Global economic growth plus USA and EU fiscal crises crashed the S&P 500 Post-Great Recession Rally. A credible USA bipartisan, medium-term fiscal plan was not accomplished. As noted above, in reviewing prior daily crashes, the crash close is normally not the bottom, but is the significant portion of the overall drop. SPX then continues downward some before the bottom is in. Oversold bounces occur and a consolidation begins developing for a few weeks. A rally generally ensues. Therefore, SPX at 1199 and support is probably not the bottom of the downtrend.

USA Credit Rating Overview Standard and Poor's downgraded the credit rating of the United States of America from AAA to AA+, with a long-term negative outlook, on August 5, 2011. The negative outlook indicates the rating could be lowered again within the next two years. Fitch Ratings continues the USA at AAA, with a stable outlook, but this is currently under review with a report due by the end of August. Moody's Investor Service confirmed the USA at AAA, but with a negative outlook, on August 2, 2011. The USA has never before had less than a AAA credit rating.

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 and March 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 revised GDP estimate of +0.4% was near-abysmal. The Q2 2011 first "advance" estimate of +1.3% is dismal. The revisions of 2008, 2009, and 2010 GDP data revealed a slower recovery and worse Great Recession than previously reported. The Q3 2011 economic data to-date indicates the USA and Global economic expansion has slowed further in July and probably will continue at very low levels in August and September. Therefore, we estimate the Q3 GDP at below +1.5%. The risk of a double-dip recession is moderate, the fear of one is high.


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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