Monday, October 3, 2011

S&P 500 Plunges to Lowest Close Since September 8, 2010 (Chart) *Down -12.6% for 2011*

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USA Manufacturing Growth Rebounded to a 3-Month High in September


S&P 500 The S&P 500 closed at 1099.23 on Monday, October 3, 2011, plunging -2.85% and -32.19 points to begin the week, month, and quarter. The S&P 500, SPX, down -12.60% for 2011 and up +62.48% 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 -19.39% below that peak.

Extreme Trading Range Since August 4, the S&P 500 has traded within a very wide trading range (see chart below) from an intraday high of 1230.71 on August 31 to an intraday low of 1098.92 on October 3 (today). That is a 131.79 point trading range and a midpoint of 1164.82. SPX closed very near the bottom of this trading range on Monday, October 3.

Bear and Correction Territory The S&P 500 has been below the slightly descending 200-day moving average (1279) 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 -19.39% 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. All of 3 of these indicators define a bear and/or correction market and territory.


S&P 500 Daily Chart Below is the SPX daily chart from September 3, 2010 to illustrate the rally peak, decline, and recent trading range.

Noteworthy Closing Prices
Current Close: 1099.23
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

S&P 500 Chart Review
Intermediate Term Trend: descending 25d avg less than plunging 50d avg since 8-9-11; SPX < both, bearish
Long Term Trend: SPX less than descending 10 month ema = 1217 beginning WE 8-5-11, bearish
Key Resistance: trading range midpoint 1165, 20d avg 1169, 50d avg 1192, benchmark 1200
Key Support: trading range low 1098.92
Moving Averages: below 20d, 50d, 400d 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 = 36.38 is nearing oversold, descending
RSI 28 day = 43.85 is reasonable, descending
MACD (12,26,9) = -5.15, descending, multi-year lo 8-10-11 (-19.97); multi-year hi 8-31-11 (+11.42)


Conclusion A lower close and intraday low were set today, but the consolidation and stabilization continues and grinds along after the crash in early August. An oversold bounce is imminent after this severe test of the bottom and support. News-driven corrections downwards and oversold bounces upwards continue to occur within the trading range. The negative USA and Global fiscal, economic, and political uncertainties continue stifling any rally. When aarnings season starts we believe this will rally the S&P 500 to some extent and provide support from a drop below the trading range. 1200 continues as the benchmark for the sentiment boundary between some optimism and significant uncertainties and earnings season should propel the SPX above at least temporarily.
● Fibonacci 50.0% Retracement SPX dropped below the Fibonacci 50.0% retracement of 1120.84 on October 3. 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. Earnings season should rally the S&P 500 above.
● 400-Day Moving Average 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. Earnings season should provide the boost to test this benchmark once again.
● Fibonacci 38.2% Retracement SPX has not been able to sustain a rally above the now very distant  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.
● 300-day Moving Average SPX has yet rally and close above the 300-day moving average of 1238, 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. A best-case scenario during earnings season propels the S&P 500 upwards to a test of this benchmark.
● S&P 500 Outlook 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 bullish for October, continue neutral to slightly bearish intermediate-term (6 months), and continue bullish long-term (12 months).
● Global and USA Economy 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.

Bear Flag A bear flag (not shown on chart above) had developed that the S&P 500 has now broken through to the downside.This continuation pattern, ultimately to the downside, is ominous and is technically confirmed by the October 3, 2011 breakdown through the lower channel.

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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