S&P 500 The S&P 500 closed the week and the month of April at 1363.61 on Friday, April 29, 2011. The S&P 500, SPX, was up +1.96% for the week, was up +2.85% for April, and is up +8.43% for 2011. SPX is up +101.56% since the March 9, 2009 market bottom which was 781 days ago. The SPX closing at 1363.61 on Friday, April 29, 2011 was a multi-year closing high, the highest close since the closing of 1404.05 on June 5, 2008. The current closing exceeded the June 6, 2008 closing of 1360.68. The current close is well above 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.
Volatility The VIX closed the week on Friday, April 29, 2011 at 14.75, slightly up 0.41% for the week, after 3 consecutive weekly declines. This VIX closed Thursday, April 28, 2011 at 14.62, which was the lowest close since June 21, 2007 (14.21)! VIX continues below the 20, 25, 50, 100, and 200 day simple moving averages. The slightly descending 50d sma regained the slightly descending 100d sma on March 22, 2011 but remains below descending 200d sma since October 8, 2010, a Death Cross. The slightly descending 100d sma crossed below the descending 200d sma - a Death Cross - on November 11, 2010. Both the intermediate term and long term indicators continue bearish.
The Big Question What happens now? Up, Down, Sideways?
Global and USA Uncertainties First concern for weeks has been high oil prices because of the Libyan revolution and other Arab uprisings. U.S. crude and Brent crude closed up for the week ended April 29 at $113.93 and $126.03, respectively. Persistent higher gas prices are now becoming a drag on USA and Global economic growth. Second concern has been the civil war in Libya plus other uprisings in the Middle East, which then affects the oil prices, the first concern. Third concern is the catastrophic earthquake that hit Japan, the world's third largest economy. The resulting nuclear radiation crisis and the negative economic impact of this ongoing crisis and possible global implications are beginning to show in economic output both for Japan and on the worldwide economy. Fourth concern is now the USA debt of $14+ trillion, the heated political and social debate, and the S&P cutting the USA to a negative outlook for sovereign credit. Fifth concern is the EU sovereign debt crisis, which waxes and wanes in its effect on equity and bond markets. Sixth concern, a medium and long term uncertainty, is the increasing demand by emerging national economies (e.g. BRIC) for commodities which then increases prices.
USA and Global Economy Overall, the USA & Global economic data since the fourth quarter 2010 continues to be encouraging. However, the past week was disappointing with the Federal Reserve lowering the 2011 economic outlook, the U.S. Bureau of Economic Analysis advance estimate of the USA Q1 2011 GDP at a very low +1.8%, and the U.S. Department of Labor reporting weekly unemployment insurance claims at a 16-week high of 429,000. The extent of the negative impact of sustained higher oil prices and global turmoil is being shown in economic data. The expected plunge in consumer sentiment has occurred, although there has been a small positive bounce subsequently. Consumer sentiment is cautious and continues at historically low levels. We continue with our assessment and statement from prior weeks: The economic data appears to show the recovery is over and expansion has begun in both the Global and USA economies. Much of the economic data in February was at Pre-Great Recession peaks and highs or post-Great Recession peaks and highs. However, March economic data (in general) showed a slowing of the expansion, both for the USA and Global economies. Up to a point, there is remarkable resiliency in both the USA and Global expansion absorbing higher oil prices and crises.
The Future We have pulled out the Magic 8 Ball, which of late has been murky, to divine what lies ahead for the S&P 500. The bulls, aka greed and optimism, have rallied the past 2 weeks on positive corporate earnings and economic data, which held the bears, aka fear and pessimism, in check. The various USA and Global uncertainties listed above had previously resulted in the S&P 500 taking a beating as each event occurred. The deciding factor in what stalls the S&P 500 Post-Great Recession Rally for the intermediate term will be slower USA and Global economic growth. There are now some indications that both USA and Global growth is slowing, expanding at a slower rate.
S&P 500 Macro View The SPX continues above the 1300 - 1305 area, which was the closing peak of the August 2008 rally. The SPX has now rallied above February 18, 2011 multi-year closing high of 1343. The S&P 500 has now risen to 1363 and is approaching the benchmark 1400. Beyond 1400 is the May 19, 2008 rally peak of 1427. The S&P 500 could ultimately reach 1400 and then upwards towards 1427 but Q1 2011 economic growth data is not exceeding Q4 2010. Bottom Line: Q1 2011 corporate earnings could still push the S&P 500 towards 1400, but the USA Q1 2011 GDP slowed considerably As optimism generated by Q1 2011 corporate earnings peak and fade, it is questionable there is any additional impetus to hold the S&P 500 near, at, or above 1400 and onwards toward 1427.
USA Q1 and Q2 2011 Q4 2010 corporate earnings, USA economic growth, and global economic growth exceeded Q3 2010 and propelled the S&P 500 above the 1300 benchmark. The U.S. Bureau of Economic Analysis third estimate for Q4 2010 was disappointing, in our view, at +3.1%. The BEA Q1 2011 advance estimate of +1.8% is borderline dismal. Q4 was to be the big quarter for the USA, with a dip in Q1 as holiday consumer spending, and some optimism, faded. This has happened. With the higher oil prices and ongoing international crises, we estimated the USA GDP for Q1 2011 at a maximum +3.0%, about a break-even economy for jobs growth. We also estimated Q1 2011 corporate earnings should meet and exceed Q4 2010 in general. The Q1 2011 economic data is now indicating the USA and Global economic "recovery" slowed, not stalled. We continue to believe the lower USA Q1 2011 GDP of +1.8% will halt the additional momentum for the SPX to continue onwards to the peak of the May 2008 rally (a very distant 1427 closing on May 19, 2008). A Q1 2011 GDP of less than 3% would probably halt the SPX short and intermediate term uptrend and possibly the long-term uptrend until the economic expansion gains additional momentum.
S&P 500 Daily Chart Below is the SPX daily chart from December 22, 2010 to the current close. This chart illustrates recent price interactions, including with the February high and March low.
Noteworthy Closing Prices
Current Close: 1363.61
2011 High: April 29 1363.61
2011 Low: March 16 1256.88
2010 High: December 29 1259.78
2010 Low: July 2 1022.58
YE December 31, 2010: 1257.64
YE December 31, 2009: 1115.10
Intermediate Term Trend: strongly ascending 25d sma > slightly ascending 50d sma since 4-21-11, bullish
Long Term Trend: SPX > 10 month ema = 1247.93 since September 2010, bullish
Key Resistance: multi-year intraday high 1364.56, benchmark 1400, 6-5-08 close 1404
Key Support: sub-peak multi-year high 1343.01, recent 1335-1336, 20d avg 1332, recent peak 1331
Moving Averages: continues above all averages monitored: 20d, 25d, 50d, 100d, 200d sma's
Uptrend Line: above since 8-31-10, line from 3-9-09 closing low of 676.53 up thru the 7-2-10 closing low of 1022.58
Downtrend Line: above since 4-21-11, line from 10-9-07 all-time closing high of 1565.15 down thru the 2-18-11 closing high of 1343.01
RSI 14 day = 68.31 approaching overbought, ascending
RSI 28 day = 70.00 is overbought, descending
MACD (12,26,9) = +4.12, continues ascending
Conclusion We continue bullish short-term, bearish intermediate term, and bullish long term. All is contingent on oil prices, in our estimation, especially for the long-term outlook. The SPX has rallied, negated all prior losses resulting from the global turbulence, and is at the highest close since June 9, 2008. USA and Global economic data has downtrended, indicating a slowing of the economic expansion. Consumer confidence has dropped on rising oil prices, as expected, and continues at historically low levels. We have maintained there is an upside bias for the S&P 500 to 1350 and 1400. This upside bias still exists through earnings season. However, if oil prices continue high into May, this will wipe out the April earnings season rally in May. A May correction and pullback will ensue as more economic data is dragged down by high oil prices. A test of the benchmark price of 1400 will probably occur as earnings season winds down. It is questionable whether the S&P 500 can hold and sustain a new multi-year high above 1400 unless data shows the USA Q2 2011 economic expansion is becoming stronger than Q1 2011. The prior multi-year high of 1343 will be tested in May if the economic data doesn't become stronger. The intermediate term trend indicator is now bullish and the long term trend has continued bullish since September 2010.
Disclosure 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.
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