Financial Professionals

Market Insights

A A A

S&P 500 Index Technical Formation

04/05/2012

The S&P 500 Index (SPX) closed on Monday, April 2, at 1419.04 – its highest level since late May 2008 (Figure 1.1). The intraday high on Monday was 1422.38. Monday’s favorable price action was largely attributable to the positive surprise from the weekend China PMI and Monday morning’s benign U.S. ISM Manufacturing reading (Figure 1.2).
 
Subsequent price action has weakened the SPX back below 1400.00 as the FOMC minutes on Tuesday dampened hopes for further QE and bond yields in Spain rose to an uncomfortable level for the first time since early January. 
 
Energy (Figure 1.3) and precious metals continue to underperform, not surprisingly and consistent with recent blog expectations. I expect technology, consumer names, and small caps to continue to offer the better investment opportunity. Should they weaken, that becomes more problematic for the overall market.
 
For the Index itself, it is time to watch the supportive technical formation that is currently being challenged:
•         In the near term, a close below the March 23 low of 1386.87 will open a path to test the major support level at 1370.58. That price point was the 2011 SPX high, which transitioned from long- standing resistance in 2011 to support now.   index,
•         A deeper decline below 1370.58 will quickly target the March 6 low of 1340.03 (Figure 1.4).
•         A washout below 1340.03 targets the 50 to 62 percent retracement box (Figure 1.5) from the October low, which rests between 1207 to 1248 – a scary long way down indeed but I am obliged to mention in a technical correction blog.
 
Finally to keep in mind – A significant deterioration in one of three fundamentals would need to occur in order to ignite a deep correction below 1370 or 1340:
•         A super spike in oil attributed to a geopolitical shock
•         A sharp contraction in U.S private sector job growth
•         A sharp contraction in U.S earnings growth, well into negative territory
 
 
Figure 1.1 S&P 500 Index (SPX), 4-Year Monthly Chart

 
Source: Bloomberg
 
 
Figure 1.2 U.S. ISM Manufacturing, Past 12 Months

 
Source: Bloomberg
 
 
Figure 1.3 XLE Energy ETF, October 3, 2011 to April 4, 2012
 

Source: Bloomberg
 
Figure 1.4 S&P 500 Index (SPX) (1370.58 support and March 6 1340.03 support annotated)
 

Source: Bloomberg
 
Figure 1.5 S&P 500 Index with 50% to 62% Retracement Box
 

Source: Bloomberg
 

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.