Matrix Markets: September 2011

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IMF Projects a Weak and Bumpy Global Economic Recovery

S&P 500 OVERVIEW

S&P 500 The S&P 500 closed at 1151.06 on Wednesday, September 28, 2011. The S&P 500, SPX, is up +1.29% for the week so far, is down -5.56% for September, and is down -8.47% for 2011. SPX is up +70.14% since the March 9, 2009 market cyclical bottom. The SPX closing at 1363.61 on April 29, 2011 was a multi-year closing high and the S&P 500 is now -15.59% below that peak.

Extreme Trading Range Since August 4, the S&P 500 has traded in a very wide trading range (see chart below) from an intraday low of 1101.54 on August 9 to an intraday high of 1230.71 on August 31. That is a 129.17 point trading range. SPX closed below the midpoint (1166.12) of this trading range on Wednesday, September 28.

Bear and Correction Territory The S&P 500 has been below the slightly descending 200-day moving average (1281) since August 2, 2011. The S&P 500 has been below the mostly level 400-day moving average (1210) since September 19, but initially dropped below on August 4. The SPX is now -15.59% below the peak, multi-year closing high of 1363.61 set on April 29, 2011. All of 3 of these indicators define a bear and correction market and territory.

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: 1156.01

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: level 25d avg less than descending 50d avg since 8-9-11; SPX < both, bearish

Long Term Trend: SPX less than descending 10 month ema = 1247 beginning WE 8-5-11, bearish

Key Resistance: trading range midpoint 1166, 20d avg 1179, benchmark 1200, 50d avg 1204
Key Support: trading range lows 1121-1119 and 1102-1101

Moving Averages: below 20d, 400d, 50d avgs, far below 100d, 200d avgs

Uptrend Line: below since 7-27-11; 3-9-09 closing low of 676.53 up thru 7-2-10 closing low 1022.58

Downtrend Line: below since of 7-8-11, from 10-9-07 closing hi 1565.15 down thru 4-29-11 closing hi 1363.61

RSI 14 day = 43.03 is reasonable, descending

RSI 28 day = 51.04 is reasonable, ascending

MACD (12,26,9) = -1.37, descending, multi-year low 8-10-11 (-19.97); multi-year high 8-31-11 (+11.42)

S&P 500 SUMMARY

Conclusion The consolidation and stabilization continues and grinds along after the crash in early August. News-driven corrections downwards and oversold bounces upwards continue to occur within the trading range. This week the SPX has dropped yet again below the midpoint of the recent trading range, after rallying above 1200 and the 400-day moving average the week before last. SPX is now below these 2 indicators. The negative USA and Global fiscal, economic, and political uncertainties have once again stifled any rally above. A test of the deep bottom closings of 1119-1121 on August 8 and 10, respectively, still seems inevitable. 1200 continues as the benchmark for the sentiment boundary between some optimism and significant uncertainties. The SPX continues at the cusp, the dividing line, of an ultimate bear or bull market, but the evidence is accumulating for a downside test to 1100 and even potentially to 1000.

● SPX has yet to sustain a rally above the 400-day moving average of 1210, which was initially dropped below on August 4. The S&P 500 now has 3 failed rallies at or above.
● SPX has yet rally and close above the 300-day average of 1237, which was initially dropped below on August 4. On August 31, the intraday peak since the August 4 crash, SPX pinned 1230.71 and the 300-day average was 1230.18 on that day.
● SPX has not been able to sustain a rally above the Fibonacci 38.2% retracement of 1225.70 which was initially dropped below on August 4. The Fibonacci range utilized is from the 3-9-09 market cyclical closing low of 676.53 up through the 10-9-07 all-time closing high of 1565.15.
● SPX has dropped to and pinned below support at the Fibonacci 50.0% retracement of 1120.84 beginning August 8 and on several days subsequently. The Fibonacci range utilized is from the 3-9-09 market cyclical closing low of 676.53 up through the 10-9-07 all-time closing high of 1565.15.
● The intermediate-term trend indicator continues bearish. The long-term trend indicator continues bearish. At the present level of the S&P 500, we continue neutral to bullish for the remainder of September, now slightly bullish for October, continue neutral to slightly bearish intermediate-term (6 months), and continue bullish long-term (12 months).

Bear Flag A bear flag (not shown on chart above) has developed that continues in-play by trading through 9-23-11. This continuation pattern, ultimately to the downside, is ominous and if confirmed by a breakdown through the lower channel, sets up a severe test of the August 8 and 10 closings of 1119-1120 and the August 9 intraday low of 1102.

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.

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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