Archive for the ‘S&P 500’ Category
So here we are—stuck in an environment of uncertainty regarding the debt crisis in Europe and declining expectations at home. The S&P 500 Index is back up to 1,200 and seemingly, those trading the index are benefitting from all the volatility. Index options traders must be relishing the current trading action in stocks and no doubt this choppiness is here to stay.
During the Federal Reserve’s Open Market Committee meeting on September 21, the Fed pulled yet another rabbit out of its hat of monetary tricks. From what increasingly appears to be an empty hat, Fed Chairman Ben Bernanke pulled out a $400-billion plan to buy long-term treasuries while selling short-term bills and notes held by the Fed. The expected net result will be to narrow the yield spreads between long and short maturities of U.S. treasuries.
I find it surprising that the stock market reacted so strongly to news of weaker gross domestic product (GDP) growth and consumer spending numbers. It seemed fairly obvious that this was going to happen and the recent trading action in stocks suggests to me that institutional traders were just waiting for a catalyst to sell. They know that corporate earnings are decent, but with the S&P 500 Index right at the point of breaking its 50- and 200-day moving averages, the selling was pronounced.
It was not what traders were hoping for, as the second-quarter gross domestic product (GDP) came in at a meager 1.3%, well below the 1.7% estimate. And making matters worse was a downward revision in the previous first-quarter estimate to a dismal 0.4% from 1.9%.
While the price of gold and price of silver continue to be very strong, a lot of gold stocks and silver stocks have been pulling back in price. It’s a reflection of the current state of things, with investor sentiment seemingly stuck in a rut. We’re in a market with so much uncertainty that any call is valid and all outcomes are plausible. The stock market could completely fall apart, stay the same, or advance. A market malaise has set in and it’s almost entirely due to the sovereign debt situation.
Since the financial crisis, the global equity markets have shown a solid turnaround before witnessing some sort of risk aversion during 2011, as the European problems continued to worsen. Asian equities have been the worst-performing markets year to date, whileU.S.markets ranked amongst the top performers.
The S&P 500 Index is inching its way back up to the 1,300 level, and this makes me feel a whole lot better about the health of the equity market. Recent trading action in both stocks and commodities suggests to me that we did in fact experience a correction, albeit one without a catalyst. The sovereign debt issue in Europe certainly weighed on sentiment and domestic economic data haven’t been strong. But, I do get the feeling that the tide is changing and institutional investors want to be buyers of stocks.
A month ago, I expressed my concerns with the S&P chart and thought stocks were set for additional weakness. My investment advice was to be careful and not to chase stocks. Even after the one-day surge last Tuesday, I thought it was largely due to an extreme oversold condition resulting from stocks closing lower in seven of eight sessions. In my view, the bias continues to be negative and, until there is a base formation, I sense that stocks may edge lower.
The six-day losing streak finally came to an end on Thursday, but I sense that the buying was likely more to do with oversold buying than a change in market sentiment.
The charts continue to show fragility and exhaustion, with the near-term view being bearish on weak Relative Strength (RS). My investment advice is that stocks could move lower in the near term.
All four of the key indices remain below their respective key 50-day moving average (MA)—a bearish sign. Watch for buying support due to an oversold technical condition.
The S&P 500 eyed key chart support at 1,130 on September 28, but managed to hold at 1,132. That was a key development, as the index broke above a key chart marker at 1,150 last Thursday and is looking to close above for the first time since May 13.
The S&P 500 retrenched below a chart top at 1,225 to 1,130 last Thursday, but managed to bounce back on Friday. The DOW and NASDAQ are managing to hold just above their chart tops. Markets are trading at a critical juncture. Should the chart tops be broken, we could see a downside move back towards the 200-day moving average (MA).
Markets continue to be on fragile ground and this should not be a surprise given that the key stock indices were unable to break or hold above some topping resistance on the charts. The failure to break higher was a red flag and a signal of further potential downside weakness to come. All four of the key stock indices are currently negative this year and fighting to find some support.
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