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The 4 Most Important Charts Right Now

05/18/2012

The current S&P 500 Index (SPX) 8.3% correction will not be arrested without the 4 catalysts shown in the charts below finding stabilization.

 

Trying to determine the macro outcome from Europe, U.S. FOMC policy, or a China slowdown is too uncertain and complicated at this point. A simpler strategy, which I am using right now, is to keep a watchful eye on the four charts below to determine if the correction trough is here.  Oil, Apple, Small Caps, and JP Morgan were catalysts during the 30% rally from the October 4, 2011 low. Without stabilization in the recent decline of those four previous catalysts, it will be difficult for the market to find its footing.

 

1.    I have not changed my outlook for Energy since I downgraded the XLE back in February. I still expect my next move will be to upgrade the XLE. A contributor to that upgrade would be the spot price of Oil (WTI) stabilizing (Fig 1.1). Currently, a major support level between $89 and $90 is being targeted. Previously, a ceiling for oil from late July to October 2011, this level must now provide support. I am watching the reaction to any challenge intently; it matters for the overall direction of the SPX.

 

2.    The share price of Apple (AAPL) (Fig 1.2) has declined 17.7% from its all-time high of $644 on April 10, 2012.  Whether it will be the support from the 100 day moving average at $527.17 or possibly a longer term technical support level from mid-February at $495-$500, the SPX cannot trough without AAPL arresting its current correction.

 

3.    Small caps, as represented by the Russell 2000 Index (RTY) (Fig 1.3), are now challenging the 200 day moving average at 753.32 for the first time since early January. A high correlation exists between the direction of the SPX and the RTY 2000 day moving average. In the past year, the RTY selling off below the 200 day in late July perfectly telegraphed the disappointing end to 2011. Conversely, the early January break above the 200 day moving average accurately telegraphed the surprisingly strong SPX performance in Q1.

 

4.    Although the focus of business headlines is on the austerity revolt in Europe, I still believe the Thursday May 10 post-close JP Morgan (JPM) (Fig 1.4) press conference was the catalyst for accelerating the decline in the SPX. Since that announcement, the SPX has lost near 4% of its 8.3% overall loss since the 1422.38 high on April 2, 2012.  JPM is approaching a technical price gap from the first trading day of 2012 at $33.42 to $34.01. Should it find support there, that would be significant for the SPX to find its trough.   

 

 

Fig 1.1 Spot price of WTI Oil

 

Source:  Bloomberg

 

Fig 1.2 Apple (AAPL)

 

Source:  Bloomberg

 

Fig 1.3 Small Caps as represented by the Russell 2000 Index (RTY)

 

Source:  Bloomberg

 

Fig 1.4 JP Morgan Chase (JPM)

 

Source:  Bloomberg

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