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S&P 500® Index Technical Formation

09/07/2011

As the month of September begins, one thing remains consistent with the theme of July and August:  the bull market of uncertainty prevails. Historically, when uncertainty permeates the capital markets, investors often rely on technical indicators to help make sound decisions. Therefore, let’s take a look at the technical formation for the S&P 500 Index.
 
For 2011, the S&P 500 (Fig 1.1) was down 7.347% to 1165.24 as of the close of business Tuesday, September 6. On Monday, May 2, the day we learned Bin Laden had been killed, the Index made its high for the year at 1370.58. Subsequent price action attempted to elevate above that high twice and failed — July 7 at 1356.48 and July 21 at 1347.00 (Fig 1.2). The D.C. political follies in late July precipitated an aggressive decline that found support on August 9 at 1101.54.
 
What needs to happen now is for the August 26 “Jackson Hole” low of 1135.91 to hold support on a closing basis. The market is currently attempting to recover from the August 9 low of 1101.54, and the August 26 low of 1135.91 is the “protector” of that previous low. Yesterday’s trading low was 1140.13. Closing below 1135.91 would dramatically increase the likelihood that the August 9 low (1101.54) will not hold. Should that low not hold, there is major long-term support from September 2010 at 1070.00. Therefore, I disagree with the “go to cash” recommendations.
 
Closing above the August 31 high (1230.71) dramatically increases the probability that the August 9 low (1101.54) will not be breached. That bullish signal will reverse the near-term bearish momentum and position the market to appreciate toward 1325.00, which I expect might just be the final stop for 2011.


Fig 1.1:  S&P 500 Index 2011

Source: Bloomberg
 
Fig 1.2:  S&P 500 Index with July breakout attempts

Source: Bloomberg
 
Fig 1.3:  S&P 500 Index with late July D.C. sell-off

Source: Bloomberg
 
Fig 1.4:  S&P 500 Index with August 26 Jackson Hole 1135.91 support

Source: Bloomberg
 
Fig 1.5:  S&P 500 Index with August 31 1230.71 high and end of year 1325 price target

Source: Bloomberg

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