Sunday, August 14, 2011

Wild Week for the S&P 500! (Chart) *Big ups & downs result in -1.72% decline*

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USA consumer sentiment has plunged to an historic low in August 2011


S&P 500 The S&P 500 closed the week at 1178.81 on Friday, August 12, 2011. The S&P 500, SPX, was down -1.72% for the week, down -12.36% for the past 3 weeks, is down -8.78% for August, was down -2.15% for July, and is down -6.27% for 2011. The negative USA plus Global fiscal, economic, and political uncertainties have overwhelmed any good news, such as the positive earnings reports. SPX is up +74.24% since the March 9, 2009 market bottom which was 886 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 -13.55% 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.

Extreme Trading Range The S&P 500 traded in a very wide trading range this past week: from an intraday low of 1101.54 on Tuesday, August 9 to an intraday high of 1198.48 on Monday, August 8. That is a 96.94 point trading range. The volatility did decrease on the last day of the week, Friday, August 12.

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 -13.55% 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. 

Volatility VIX closed the week on Friday, August 5, 2011 at an astronomical 36.36, up an alarm-bell ringing +108% in the past 3 weeks. VIX is up +129% in the past 6 weeks, since the week ending July 1, 2011. 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. All previous Death Crosses noted in prior posts have been negated.

U.S. Dollar The U.S. Dollar Index closed the week on Friday, August 5, 2011 at 74.68, flat at -0.03% for the week. The USDX is now above the 20-day moving average, but continues below the 50, 100, and 200-day moving averages. The USDX continues in the middle of a trading range that began in March 2011.

S&P 500 Macro View The SPX closing at 1179 survived the wild week, found support at a deep bottom of 1119-1120, and regained a significant amount of losses incurred earlier in the week. 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 some ultra-long, multi-year indicators, the S&P 500 continued to test some successfully this past week and would not technically be considered in a long-term bear market presently. However, the SPX has yet to rally above the 400-day moving average of 1204.
* 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 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 September 8, 2010 to illustrate the most recent price interactions with the current trading.

Noteworthy Closing Prices
Current Close: 1178.81
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 = 1260.49 beginning WE 8-5-11, bearish
Key Resistance: 1200 benchmark, major moving avgs are far above
Key Support: 1173, 1120-1119
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 = 29.84 is oversold, ascending
RSI 28 day = 34.94 is oversold, ascending
MACD (12,26,9) = -12.56, ascending, multi-year low 8-10-11 (-19.97); multi-year high 7-7-11 (+9.45)


Conclusion The S&P 500 was extremely volatile this past week on a variety of USA and Global uncertainties of a fiscal, economic, and political nature. Support appears to have been found at 1119-1120 and any closings below this or further tests of the intraday low of  1101-1102 would be a severe test. In reviewing prior daily  and weekly crashes, any daily and weekly crash closes are normally not the bottom, but is the significant portion of the overall drop. SPX then continues a lesser downward trend before the bottom is in. Oversold bounces occur and a consolidation begins developing for a few weeks. A rally generally ensues. Therefore, SPX at 1179 probably has incurred the significant portion of the losses and probably has begun a consolidation. The intermediate-term trend indicator is now 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. 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. 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 concern since March but continues 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 $85.38 and $107.80, respectively. Light Crude NYME has decreased for 3 consecutive weeks, which is encouraging. 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,  continue in overall control but the bulls, aka greed and optimism, appear to have stopped the overall negative downtrend in the equity markets this past week. The negative USA and Global fiscal, economic, and political uncertainties overwhelmed the positive earnings reports. Downshifting USA and Global economic growth plus USA and EU fiscal crises crashed the S&P 500 Post-Great Recession Rally. 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 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 by these agencies. However, the USA was previously downgraded by several lesser-know 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.


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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