Saturday, October 8, 2011

S&P 500 Rallies Above 2011 Lows! (Chart) *Russell 2000 & Dow Jones Transports in Bear Market*

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


S&P 500 The S&P 500 closed at 1155.46 on Friday, October 7, 2011. The S&P 500, SPX, was up +2.12% for the week, month, and quarter to-date, down -8.12% for 2011, and up +70.79% 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 -15.26% 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 1074.77 on October 4. That is a 155.94 point trading range and a midpoint of 1152.74. SPX closed above the midpoint of this trading range on Friday, October 7.

Bear and Correction Territory The S&P 500 has been below the slightly descending 200-day moving average (1277) 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 -15.26% 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 is in a correction but not technically in a Bear Market. All of 3 of these indicators can define a bear and/or correction market and territory.

Other Indexes Both the Russell 2000 and Dow Jones 20 Transportation Average are more than 20% below their 2011 peak closing highs, at -24.16% and -22.40% below, respectively. One definition of a Bear Market is a 20% decline below the peak, so both indexes are considered in a Bear Market. Of concern is that some consider one or both of these indexes a leading indicator for the other indexes. By comparison, the S&P 500, NASDAQ Composite, Dow Jones 30 Industrials, and the NASDAQ 100 are -15.26%, -13.72%, -13.33%, and -9.33% below their 2011 peak closing highs, respectively.


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: 1155.46
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 descending 50d avg since 8-9-11; SPX < both, bearish
Long Term Trend: SPX less than descending 10 month ema = 1227 beginning WE 8-5-11, bearish
Key Resistance: 20d avg 1163, 50d avg 1178, benchmark 1200, 400d avg 1210
Key Support:  trading range midpoint 1153, trading range low 1075
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 = 41.63 is reasonable, level
RSI 28 day = 44.59 is reasonable, descending
MACD (12,26,9) = +0.94, ascending, multi-year lo 8-10-11 (-19.97); multi-year hi 8-31-11 (+11.42)


Conclusion A 2011 lower close and intraday low were set this week, but the consolidation and stabilization continues and grinds along after the crash in early August. An oversold bounce occurred after the severe test of the bottom and support. News-driven corrections downwards and oversold bounces upwards continue to occur within the expanded trading range. The negative USA and Global fiscal, economic, and political uncertainties continue stifling any rally. Earnings season begins this next week and 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 and rebounded above the Fibonacci 50.0% retracement of 1120.84 this past week. The Fibonacci range utilized is from 10-9-07 all-time closing high of 1565.15 down through the 3-9-09 market cyclical closing low of 676.53. Earnings season should maintain 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 the 10-9-07 all-time closing high of 1565.15 down through the 3-9-09 market cyclical closing low of 676.53. Earnings season may provide the impetus to test this level again.
● 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.

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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