Matrix Markets: S&P 500 Drops for Fourth Straight Week (Chart) *USA & global uncertainties weigh heavily*

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USA Weekly Leading Index has plunged to a 41-week low

S&P 500 OVERVIEW

S&P 500 The S&P 500 closed the week at 1123.53 on Friday, August 19, 2011. The S&P 500, SPX, was down -4.69% for the week, is down -16.47% for the past 4 weeks, is down -13.06% for August, was down -2.15% for July, and is down -10.66% for 2011. The negative USA plus Global fiscal, economic, and political uncertainties have stopped any rally above 1200. SPX is up +66.07% since the March 9, 2009 market bottom which was 893 days ago. The SPX closing at 1363.61 on 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 -17.61% 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. SPX continues far below the major moving averages: 20, 50, 100, and 200-day.

Extreme Trading Range The S&P 500 has traded in a very wide trading range (see chart below) from an intraday low of 1101.54 on Tuesday, August 9 to an intraday high of 1208.47 on Wednesday, August 17. That is a 106.93 point trading range. SPX closed in the lower part of this trading range on Friday, August 19.

Bear and Correction Territory The S&P 500 has been below the 200-day moving average since Tuesday, August 2, 2011. Before dropping below, the SPX had been above the 200-day average since September 13, 2010. The 200-day average is considered by some the dividing line between a bull and bear market, therefore the SPX would be considered in a bear market. The SPX is now -17.61% below the peak, the multi-year closing high of 1363.61 on Friday, April 29, 2011. Some define a correction market and territory as -10% or more from the market peak, therefore, the SPX would be considered in a correction. In addition, the 50-day moving average crossed below the 200-day moving average, a Death Cross, on Friday, August 12.

Volatility VIX closed the week on Friday, August 19, 2011 at an astronomical 43.05, up an alarm-bell ringing +146% in the past 4 weeks, since the week ended July 22. VIX is up +171% in the past 6 weeks, since the week ended July 1. The VIX closed at 48.00 on Monday, August 8, 2011, which was the highest close since the week ended March 6, 2009, the week before the market cyclical bottom. The skyrocketing VIX has risen far above the 20, 50, 100, and 200-day moving averages.

U.S. Dollar The U.S. Dollar Index closed the week on Friday, August 19, 2011 at 74.11, down -0.76% for the week. The U.S. Dollar Index is flat, at +0.14%, for the past 4 weeks, since the week ended July 22, 2011. The USDX is now below the 20-day moving average and continues below the 50, 100, and 200-day moving averages. The USDX is now in the lower portion of a trading range that began in mid-March 2011.

S&P 500 Macro View The SPX closing at 1124 is at nominal support previously found at a deep bottom closing of 1119-1121 on August 8 and 10, respectively. 1200 is the current benchmark resistance and the sentiment boundary between some optimism and continued significant uncertainties. SPX continues below the 20, 50, 100, and 200-day averages.
* In reviewing various ultra-long, multi-year indicators, the S&P 500 is below these at the lower end of the aforementioned trading range and above at the higher end. Therefore, SPX is at the cusp, the dividing line, of a bear and bull market. However, the SPX has yet to rally above the 400-day moving average of 1204. The S&P 500 dropped and closed below on Thursday, August 4. SPX actually closed at the 400-day average on Monday, August 15, which appeared to act as resistance.
* The S&P 500 closes of 1119.46 and 1120.76 on Monday and Wednesday, August 8 and 10, 2011 were the lowest closes since Friday, September 10, 2010 (1109.55), which interestingly was the last day SPX was below the 200-day average before gapping up on Monday, September 13, 2010. A rally ensued until August 2, 2011, when the SPX definitively dropped below the 200-day average.
* The S&P 500 intraday low of 1101.54 on Tuesday, August 9, 2011 was the lowest price since September 9, 2010, which interestingly was the first day the SPX closed above 100-day average. A rally ensued until March 16, 2011, when the SPX briefly dropped below the 100-day average.

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

S&P 500 DAILY CHART

S&P 500 Daily Chart Below is the SPX daily chart from April 29, 2011 and the multi-year closing high of 1363.61, to illustrate the decline and recent trading range.

Noteworthy Closing Prices

Current Close: 1123.53

2011 High: April 29 1363.61

2011 Low: August 8 1119.46

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: descending 25d avg less than descending 50d avg since 8-9-11; SPX is far below both 25d and 50d avgs, bearish

Long Term Trend: SPX less than descending 10 month ema = 1250.44 beginning WE 8-5-11, bearish

Key Resistance: 1200 benchmark, major moving avgs are far above

Key Support: at nominal support, just above 1121-1119, 1102-1101

Moving Averages: far 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 = 31.92 is oversold, descending

RSI 28 day = 33.67 is oversold, descending

MACD (12,26,9) = -5.01, descending, multi-year low 8-10-11 (-19.97); multi-year high 7-7-11 (+9.45)

S&P 500 SUMMARY

Conclusion The S&P 500 volatility continues due to the accumulation of a variety of USA and Global uncertainties of a fiscal, economic, and political nature plus computer flash trading. SPX is near the bottom of the recent trading range (see chart above). An oversold upwards bounce towards the top of the trading range is likely early this next week. Further significant negative news, such as worse USA economic data or another EU sovereign debt crisis bombshell, and the lower trading range support will fail. Support is 1121-1119 and any closings below this or further tests of the intraday low of 1102-1101 would be a severe test. Oversold bounces should continue to occur and a consolidation is most likely beginning to develop. If a USA double-dip recession does occur, the bottom is not in. The intermediate-term trend indicator continues bearish. The long-term trend indicator continues bearish. 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..

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

Global and USA Uncertainties

1) First Concern is the USA short-term and intermediate-term economic, fiscal, and political 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. However, this could be some years away. 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 and citizen confidence and sentiment continues at historically low levels and the unemployment and underemployment rates continue high. Due to abysmally low citizen, consumer, and business sentiment, a double-dip recession could become a self-fulfilling prophecy. The GDP revisions revealed a deeper Great Recession and a less robust, slower recovery. On top of all this, S&P downgraded the USA and related agencies credit ratings from AAA to AA+.

2) Second Concern is the EU sovereign debt and related financial system 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. Ultimately this overall crisis will result in insolvent banks to be bailed out. In the future in various Eurozone countries, there will be more austerity measures to buy yet more time to receive yet more bailouts. 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 the Global short-term and intermediate-term economic status. Economic growth continues slowing on a worldwide scale, but not as much as in the USA and Eurozone.
4) Fourth 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.
5) Fifth Concern, a concern since March but rapidly 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 at $82.26 and up at $109.22, respectively. Light Crude NYME has decreased for 4 consecutive weeks, which is encouraging. Oil prices are now well below the highs of late April and early May and now all the way back to the pre-oil spike prices of November 2010. This should eliminate the drag on USA and Global economic growth.

6) Sixth Concern was the catastrophic earthquake and tsunami that hit Japan, the world's third largest national economy, and the resulting nuclear radiation crisis and the negative global economic impact. The worst is over and this concern is moot.

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, continue in overall control and the bulls, aka greed and optimism, have a line in the sand at 1121-1119 and 1102-1101. The negative USA and Global fiscal, economic, and political uncertainties overwhelmed the positive earnings reports of July and August. 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, the USA equity markets are probably in a consolidation phase at this point.

USA Credit Rating Overview Fitch Ratings affirmed USA at AAA, with a stable outlook, on August 16, 2011. Standard and Poor's lowered 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. Moody's Investor Service affirmed 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 by these agencies. However, the USA was previously downgraded by several lesser-known rating agencies: S&P Was Not First Rating Agency to Downgrade USA (Video) *China's Dagong Global Credit never rated America at AAA*.

USA 2011 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.

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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