Matrix Markets: S&P 500 at Highest Close Since August 4! (Chart) *Up +8% in October*

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USA unemployment rate continued at 9.1% in September 2011

S&P 500 OVERVIEW

S&P 500 The S&P 500 closed at 1224.58 on Friday, October 14, 2011. The S&P 500, SPX, was up +5.98% for the week, is up +8.23% in October and the quarter to-date, is down -2.63% for 2011, and is up +81.01% 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 -10.20% below that peak.

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 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 near the top of this trading range on Friday, October 14.

Bear and Correction Territory The S&P 500 has been below the slightly descending 200-day moving average (1276) since August 2, 2011. The S&P 500 rallied above the mostly level 400-day moving average (1211) today, October 14, but initially dropped below on August 4. The SPX is now -10.20% 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 in a Bear Market.

Russell 2000 & Dow Jones Transports Rally Out of Bear Market Both the Russell 2000 and Dow Jones 20 Transportation Average rallied this past week to less than 20% below their 2011 peak closing highs, at -17.66% and -16.50% below, respectively. One definition of a Bear Market is a 20% decline below the peak, so both indexes are considered in a correction but not technically 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 now -10.20%, -7.16%, -9.10%, and -2.37% below their 2011 peak closing highs, respectively.

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 peak of 1363.61 to illustrate the rally peak, decline, and recent trading range.

Noteworthy Closing Prices

Current Close: 1224.58

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 8-9-11; SPX > both, tenuously bullish

Long Term Trend: SPX < slightly descending 10 month ema = 1240 beginning WE 8-5-11, bearish

Key Resistance: Fibonacci 38.2% retracement 1226, trading range hi 1231, 100d avg 1238
Key Support: 400d avg 1211, benchmark 1200, 50d avg 1173, 20d avg 1167

Moving Averages: above 20d, 50d, 400d; below 100d, 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 = 61.91 is reasonable, descending

RSI 28 day = 55.73 is reasonable, ascending

MACD (12,26,9) = +10.05, ascending, multi-year lo 8-10-11 (-19.97); multi-year hi 8-31-11 (+11.42)

S&P 500 SUMMARY

Conclusion SPX (1225) has rallied and closed above the 400-day moving average (1211) for the first time since September 16 and a test of both the 38.2% Fibonacci retracement (1226) and trading range top (1231) is next. The consolidation and stabilization continues 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 have stifled any rally above the expanded trading range. We believe this earnings season rally will continue and a test of the trading range top (1231) is imminent. 1200 continues as the benchmark for the sentiment boundary between some optimism and significant uncertainties.
● Fibonacci 50.0% Retracement SPX is now well above Fibonacci 50.0% retracement of 1120.84. 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 well above.

● 400-Day Moving Average SPX has yet to sustain a rally above the 400-day moving average of 1211, which was initially dropped below on August 4. The S&P 500 has 3 failed rallies at or above and is currently in the process of a 4th rally. Earnings season has provided the boost to rally above this benchmark once again.
● Fibonacci 38.2% Retracement SPX has not been able to sustain a rally above the 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 will probably provide the impetus to test this level again.
● 300-day Moving Average SPX has yet rally and close above the ascending 300-day moving average of 1239, 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 tenuously bullish. 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 for November and December, 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.

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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