Saturday, October 22, 2011

S&P 500 at Highest Close Since August 3! (Chart) *Rallies above 100-day average*

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The USA Weekly Leading Index rebounded from a 116-week low


S&P 500 The S&P 500 closed at 1238.25 on Friday, October 21, 2011. The S&P 500, SPX, was up +1.12% for the week, is up +9.44% in October and the quarter to-date, is down -1.54% for 2011, and is up +83.03% 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 -9.19% below that peak, which means the S&P 500 has (barely) rallied out of a correction.

Extreme Trading Range Since August 5, the S&P 500 has traded within a very wide trading range (see chart below) from an intraday high of 1239.03 on October 21 to an intraday low of 1074.77 on October 4. That is a 164.26 point trading range and a midpoint of 1156.90. SPX closed essentially at the top of this trading range on Friday, October 21.

S&P 500 Rallies Out Of Correction Territory The S&P 500 has been below the slightly descending 200-day moving average (1275) since August 2, 2011. The S&P 500 once again rallied above the mostly level 400-day moving average (1212) on October 20, but initially dropped below on August 4. The SPX is now -9.19% below the peak, multi-year closing high of 1363.61 set on April 29, 2011. 10% below the peak is considered a correction market and 20% below is considered a bear market, therefore the SPX has rallied out of a correction.

Russell 2000 & Dow Jones Transports Continue  in Correction Market There is a disparity and ongoing divergence among the stock indexes in 2011 performance and how far they are below the 2011 peak closing highs:
Index, YTD Performance, From 2011 Peak Closing High
NASDAQ 100: +5.32%, -3.85%
Dow Jones 30 Industrials Average: +2.00%, -7.82%
NASDAQ Composite: -0.58%-8.22%
S&P 500: -1.54%, -9.19%
Dow Jones 20 Transportation Average: -5.74%, -14.32%
Russell 2000: -9.09%, -17.67%
The large cap, international companies have reported strong financial results, with strong sales growth in the Asia Pacific region. The energy and technology sector sectors have also reported solid financial performance. One definition of a Correction Market is a 10% decline below the prior peak and a Bear Market is 20% below. Therefore, the Dow Jones Transports and Russell 2000 continue in a correction market and none of the indexes are in a Bear Market.


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

Noteworthy Closing Prices
Current Close: 1238.25
2011 High: April 29 1363.61
2011 Low: October 3 1099.23
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
Market Cyclical High: April 29, 2011 1363.61

S&P 500 Chart Review
Intermediate Term Trend: ascending 25d avg ascending 50d avg since 10-19-11; SPX > both, tenuously bullish
Long Term Trend: SPX level 10 month ema = 1242 beginning WE 8-5-11, tenuously bearish
Key Resistance: trading range hi 1239, pre-crash closes 1254-1260, 200d avg 1275
Key Support: 100d avg 1232, Fibonacci 38.2% retracement 1226, 400d avg 1212, benchmark 1200
Moving Averages: above 20d, 50d, 100d, 400d; below 200d
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 = 78.53 is overbought, ascending
RSI 28 day = 56.36 is reasonable, ascending
MACD (12,26,9) = +7.65, ascending, multi-year lo 8-10-11 (-19.97); multi-year hi 8-31-11 (+11.42)


Conclusion SPX (1238) has rallied and closed above the 400-day moving average (1212), the 38.2% Fibonacci retracement (1226), and the 100-day average (1232), and the prior trading range top (1231). The pre-crash close of 1260 on August 3 does not appear attainable unless extraordinarily positive economic data is forthcoming. The consolidation and stabilization continues, even a significant rebound, and grinds along after the crash in early August. An oversold bounce has occurred, propelled by positive earnings reports and economic data, after another severe test of the bottom and support. The negative USA and Global fiscal, economic, and political uncertainties will regain preeminence as earnings season winds down and most likely stifle any further rally. The earnings season rally has occurred and is nearing or is at the top. 1200 continues as the benchmark for the sentiment boundary between some optimism and significant uncertainties.
● 300-day Moving Average SPX has yet rally and close above the slightly ascending 300-day moving average of 1241.36, 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 came very close on October 21, at an intraday high of 1239.03A best-case scenario during earnings season propels the S&P 500 upwards to a test of this benchmark.
● 100-Day Moving Average SPX rallied and closed above the descending 100-day moving average of 1232 on October 21 for the first time since July 26! A positive earnings season and more European assurances triggered the ascent above this milestone.
● Fibonacci 38.2% Retracement SPX rallied and closed above the Fibonacci 38.2% retracement of 1225.70 on October 21 for the first time since August 4. SPX had previously pinned through intraday and closed just below several times since early August. The Fibonacci range utilized is from the the 10-9-07 all-time closing high of 1565.15 down through the 3-9-09 market cyclical closing low of 676.53. A positive earnings season and more European assurances triggered the ascent above this benchmark.
● 400-Day Moving Average SPX rallied and closed above the 400-day moving average of 1211 on October 20, after was initially dropping below on August 4. The S&P 500 had several previous failed rallies at or above. A positive earnings season and more European assurances provided the boost to rally above this benchmark once again.
● S&P 500 Outlook The intermediate-term trend indicator continues tenuously bullish. The long-term trend indicator continues tenuously bearish. At the present level of the S&P 500, we continue neutral to slightly bullish for October, continue neutral to slightly bearish for November and December, and continue bullish long-term (12 months).
● Global and USA Economy The global and USA economic data is neither very positive nor very negative. No recession or moderate recovery, just slow to very slow growth in the developed economies and strong, but slowing, growth in the emerging economies. Warren Buffet is saying the recovery is proceeding and no recession is ahead. Lakshman Achuthan of ECRI says the recovery has been underwhelming and that an American Recession is ahead. To us, the economic indicators are dismal, but continue bottom-bouncing to-date and show neither much recovery nor a recession. A video of Achuthan's interview and prediction of the recession is here.

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 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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