Today's Market Observation  06.18.2009  Mon  Tue  Wed  Thu  Fri  Goldberg Archive

S&P 500 Long, Medium, and Short Term

BY MARTIN GOLDBERG, CMT | june 18, 2009

Starting out from the long term and working our way to the short term, below is a technical analysis of the S&P 500 index. The rally that began in 2003 produced a bull market (defined a series of higher highs and higher lows), that lasted until October of 2008 and resulted in a gain of almost 100% when measured from its low, at about 800, to its high at about 1550. The market went from a bull to a bear market after October 2008, making a trend of lower lows and lower highs. In the summer of 2008, the market crashed into the fall of 2008, followed by a sharp rally, and then another crash that took the index into a low at 666 in early March of 2009. The subsequent rally from early March in the context of the long term looks more like a reaction than a trend. I say that because of the sharpness, almost “panic” buy nature of the rally. It resembles the “panic” sell that preceded it. Of course, this rally can be the beginning of a new bull market. Or it could be a reaction in a longer term bear market. There is little in the chart to suggest one or the other. Where we are now, at near the mid 900’s has been an area where there has been a lot of action in the index over the last couple of decades. If the index were to clear this area, then that would be a pretty strong indicator that the shorter term trend has changed to a series of higher highs and higher lows – a new bull market. But only time will resolve that issue.

Perhaps something of value can be gleaned from a view of the intermediate term chart. Indeed this is the same chart posted up a month ago. Since that time, again, nothing seems to have been settled. If there is one feature of the action that has occurred in the last month, it is the fairly consistent diminishment of volume as the last 6 weeks have progressed. A bull could suggest this to be a healthy sign, in as much as it would be consistent with a healthy consolidation of the gains seen since early March. A bear could suggest that after a run up from March, “there is no one left to buy.” That said, to try to determine the intermediate term direction of the market would probably be a technician’s guess at this moment.

What is the shorter term telling us? Here we have a daily chart of the S&P 500 index. This chart does have some value as 950 and 925 are identified as key short term technical areas. The low of two days ago is lower than the high made in early May. A break back above 925 would be bullish as it would reestablish 925 as short term support for the index. The most short-intermediate term technical importance is with 880 and 950. A break to the downside of 880 would officially end the series of intermediate term higher highs and higher lows, and put the market in an intermediate term correction at best, and a resumption of the bear market at worst. Similarly a move above 950 would result in the official continuation of the uptrend that began in early March.

Is there much to be gleaned in the shortest of terms? Below is the 10-day chart shown in 10-minute increments. Here you can see a downtrend, consisting of lower lows and lower highs. On today’s rally the market put in a lower high (although over the last two days it has been higher highs and higher lows). The 10-day downtrend probably deserves the benefit of the doubt; that is until (and unless) the S&P 500 climbs above 925. Such a climb if it occurs would have both short and intermediate term technical implications.

If there are some bearish implications the market is showing in the short term, it is that many individual issues are showing technical features that are bearish and probably do not resemble healthy consolidations.

Here you see a 3-month chart of FedEx Corp., where $52/share represents an important support/resistance area. It would probably be technically important that FedEx decisively rise above $52. It is now a game of inches.

 

Similarly, although the following chart is not one of an important US company, it is a “poster child of the rally.” That is a stock that has been a market football over the years, with high beta that has been a market leader from March onward. The action of the last three months has been pretty bad and this would seem to suggest that this “bull market” either needs new leadership, or it is over.

Finally, some important issues are near a point that is technically critical. Take Goldman Sachs. Here the long term completion of the head-and-shoulders reversal has occurred. Since the late fall of ’08, however, the stock has rallied to near its neckline. Is the stock in a new bull market? Technical pattern analysis suggests that the rally taking GS back to its neckline occurred on progressively and consistent diminishing volume. It therefore suggests that indeed, “there is no one left to buy.” I would say that if GS were to decisively take out its neckline on higher volume that would be a strong indicator of a new bull market. Similarly a loss of the neckline to the downside, especially on increasing volume would be a strong indicator of the resumption of the long term bear market.

Martin Goldberg

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