Saturday, September 3, 2011

S&P 500 Drops on USA Jobs Report (Chart) *Down -3.7% for September*

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The USA had no jobs growth in August and created only 105,000 jobs this summer


S&P 500 The S&P 500 closed the week at 1173.97 on Friday, September 2, 2011. The S&P 500, SPX, was flat, down -0.24% for the week, is already down -3.69% for September, was down -5.68% for August, and is down -6.65% for 2011. The negative USA and Global fiscal, economic, and political uncertainties have stifled any rally above 1200. SPX is up +73.53% since the March 9, 2009 market bottom which was 907 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 -13.91% below that multi-year closing. That peak closing of 1363.61 exceeded the June 6, 2008 closing of 1360.68. The current close continues 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 is just above the descending 20-day average, but continues far below the other major moving averages: 50, 100, and 200-day.

Extreme Trading Range Since August 5, 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 1230.71 on Wednesday, August 31. That is a 129.17 point trading range. SPX closed just above the mid-point (1166) of this trading range on Friday, September 2.

Bear and Correction Territory The S&P 500 has been below the 200-day moving average since 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 S&P 500 rallied temporarily above the 400-day moving average this past week, but closed the week below. The 400-day moving average could be considered the ultra long-term dividing line between a bull and bear market. The SPX is now -13.91% 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. In addition, the 100-day moving average will cross below the 200-day moving average this next week, another Death Cross.

Volatility VIX closed the week on Friday, September 2, 2011 at a lower 33.92, down -4.69% for the week. VIX is now below the near-level 20-day average and continues above the 50, 100, and 200-day moving averages.

U.S. Dollar The U.S. Dollar Index closed the week on Friday, September 2, 2011 at 74.84, up +1.31% for the week. The U.S. Dollar Index had previously been flat, quiet, up a mere +0.22% from July 22 through August 31. The USDX rallied above the 20, 50, 100-day averages this past week but continues below the 200-day moving average. The USDX is now at the mid-point of a trading range that began in mid-March 2011.

S&P 500 Macro View The SPX closing at 1174 is at and near some support, including the descending 20-day average of 1172. Ultimate support was found at a deep bottom closing of 1119-1121 on August 8 and 10, respectively. 1200 continues as the benchmark resistance and the sentiment boundary between some optimism and continued significant uncertainties. SPX has rallied above the 20-day average, although tenuously by the end of the week, and continues well below the 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 an ultimate bear or bull market.
* The SPX has yet to sustain a rally above the 400-day moving average of 1206, which was initially dropped below on August 4.. The S&P 500 rallied above this past week, then fell back below. SPX actually closed at the 400-day average on August 15, which appeared to act as resistance.
* The SPX pinned upwards to the 300-day average on Wednesday, August 31, the peak of the recent rally. SPX pinned 1230.71 and the 300-day average was 1230.18 on that day. The S&P 500 has been below this average since August 4.
* The S&P 500 closes of 1119.46 and 1120.76 on August 8 and 10, 2011 were the lowest closings 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 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: 1173.97
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: strongly descending 25d avg less than descending 50d avg since 8-9-11; SPX is below both 25d and 50d avgs, bearish
Long Term Trend: SPX less than descending 10 month ema = 1251 beginning WE 8-5-11, bearish
Key Resistance: 1200 benchmark, recent peak close 1219, trading range high 1231
Key Support: 20-day avg 1172, trading range lows 1121-1119 and 1102-1101
Moving Averages: just above 20d avg, far below 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 = 44.13 is reasonable, descending
RSI 28 day = 38.28 is oversold, descending
MACD (12,26,9) = +8.69, descending, multi-year low 8-10-11 (-19.97); multi-year high 8-31-11 (+11.42)


Conclusion The dismal August Employment Situation Summary was a rally killer and heightened fears of a double-dip recession. The S&P 500 promptly fell back into the trading range that began August 4 and closed  at 1174, just above the trading range mid-point of 1166. The USA and Global fiscal, economic, and political uncertainties continue plus high frequency trading. Further significant negative news, such as worse USA economic data or another EU sovereign debt crisis bombshell and the S&P 500 will drop deeper into the trading range. Downwards corrections and oversold bounces upwards should continue to occur as the consolidation continues. If a USA double-dip recession does occur, the bottom is not in. The intermediate-term trend indicator is now bearish. The long-term trend indicator continues bearish. At the present level of the S&P 500, we continue bearish to neutral for September, 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 now moderate to high. The fear of a double-dip recession is now very 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, recession 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 up at $86.45 and up at $112.52, respectively. Light Crude NYME has increased the past 2 weeks, but is well below the peak close of $113.88 on April 29, 2011, which is encouraging. Oil prices are now well below the highs of late April and early May and all the way back to the pre-oil spike prices of February 2011. 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 1102-1101The negative USA and Global fiscal, economic, and political uncertainties have 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. credible USA bipartisan, medium-term fiscal plan was not accomplished. The USA equity markets are in a consolidation and stabilization phase at this point, with little impetus upwards or downwards out of the trading range.

USA Credit Rating Overview Fitch Ratingaffirmed 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, Arab Spring, 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 second estimate of +1.0% 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 August and will probably continue at low levels in September. Therefore, we now estimate the Q3 GDP below +1.5%. The risk of a double-dip recession is moderate to high, the fear of one is very 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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