Matrix Markets: August 2011

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S&P 500 Technical Update

S&P 500 OVERVIEW

S&P 500 The S&P 500 closed at 1218.89 on Wednesday, August 31, 2011. The S&P 500, SPX, is up +3.58% so far this week, finished August down -5.68%, was down -2.15% for July, and is down -3.08% for 2011. The SPX overcame the negative USA plus Global fiscal, economic, and political uncertainties to rally above 1200. SPX is up +80.17% since the March 9, 2009 market bottom. 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 -10.61% 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 now above the sharply descending 20-day average (1173) and has rallied above the mostly level 400-day average (1206). SPX continues below the 50, 100, and 200-day averages of 1256, 1288, and 1284, respectively.

Extreme Trading Range The S&P 500 had traded in a very wide trading range from an intraday low of 1101.54 on Tuesday, August 9 to an intraday high of 1208.47 on Wednesday, August 17. SPX rallied above this trading range on Monday, August 29.

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 continues in a bear market. The S&P 500 had been below the 400-day moving average since August 4, 2011 but rallied above on Monday, August 29. The 400-day moving average could be considered the ultra long-term dividing line between a bull and bear market. The SPX is now -10.61% below the peak, the multi-year closing high of 1363.61, of 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 continuing in a correction. In addition, the 50-day moving average crossed below the 200-day moving average, a Death Cross, on Friday, August 12.

Volatility VIX closed Wednesday, August 31, 2011 at a high 31.62, down -11.15% so far this week. VIX finished August up +25.23% and is up +78.14% for 2011. The VIX closed at 48.00 on Monday, August 8, 2011, which was the highest close since the week ended March 6, 2009, the week before the market cyclical bottom. The skyrocketing VIX continues above 50, 100, and 200-day moving averages, but dropped below the 20-day average of 34.13 on Monday, August 29.

U.S. Dollar The U.S. Dollar Index closed on Wednesday, August 31, 2011 at 74.17, up +0.41% so far this week. USDX finished August flat at -0.07%, and is down -6.16% for 2011. The U.S. Dollar Index is flat, at +0.22%, for the past 5+ weeks, since the week ended July 22, 2011. The USDX continues below the 20, 50, 100, and 200-day moving averages. The USDX is now in the lower portion of a trading range that began in mid-March 2011.

Economic and Market News Information about the USA and Global economies plus the USA financial system are posted at Boom Doom Economy, Financial Controls, Baidu Planet, and Neo Solomon.

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: 1218.89

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 between 25d and 50d avgs, neutral

Long Term Trend: SPX less than descending 10 month ema = 1268 beginning WE 8-5-11, bearish

Key Resistance: 1226, 1235, 50d avg 1256

Key Support: 1208, 1200 benchmark, 20d avg 1173, 1121-1119, 1102-1101

Moving Averages: just below 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 = 59.36 is reasonable, descending

RSI 28 day = 40.18 is borderline oversold, ascending
MACD (12,26,9) = +11.42, new multi-year high, ascending, multi-year low 8-10-11 (-19.97)

Conclusion Numerous USA economic reports are to be reported within a week, including the monthly Employment Situation Summary on Friday, September 2. The resulting positive or negative data will determine the overall equity market trend, barring another event in the ongoing EU sovereign debt crisis. However, we believe the consolidation is not over. The S&P 500 has 4 consecutive days of gains, rallied above the recent consolidation, rallied above 1200, and volatility has decreased. The USA and Global fiscal, economic, and political uncertainties continue plus high frequency trading. SPX has rallied above the recent trading range. Further significant negative news, such as worse USA economic data or another EU sovereign debt crisis bombshell and the S&P 500 will drop back into the recent trading range below 1200. 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 neutral. The long-term trend indicator continues bearish. At the present level of the S&P 500, we are 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..

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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