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1975/1976 & SPX Technical Formation

02/14/2013

The most obvious observation for any money manager currently is the possibility for an S&P 500® Index (SPX) correction. Yes, by historical standards it is due, and some would argue long overdue. However, be aware there does exist a rather compelling prior pattern that suggests 2013 could follow the same pattern as 2012. Let’s take a closer look.

  • In 2012, the SPX (Figure 1.1) never once traded below the first trading of the year’s intraday low on any given day.
  • In addition, in 2012 the SPX never once closed, on any given day, down year to date.
  • 1976 was the last time an entire year passed without a close on any given day, down year to date (Figure 1.2).
  • In 2013, we have not traded below the first trading day of the year’s intraday low on any given day. (Figure 1.3).
  • 1975/1976 (Figure 1.4) is the last time the SPX enjoyed two consecutive years in which the intraday low on the first trading day of the year was never breached throughout the year.

Although the pattern is not likely to be repeated, yes, in fact, it can happen.

More importantly, let’s take a look at the current SPX technical formation.

Current SPX Technical Formation

Near-term support at 1495.71 on a closing basis – “Turnaround Tuesday,” February 5, 2013.(Figure 1.5)

  • On this day, the market reverses the conflicted early February trading pattern surrounding the unemployment report. Subsequent trade steadies itself and resumes the prevailing bull trend to reach 1524.69 on February 13, 2013. A close below Turnaround Tuesday’s 1495.71 intraday low would bs suggestive of a deeper correction.

Major support at 1474.51 on a closing basis – prior high for 2012 breached January 17, 2013 (Figure 1.6)

  • What was once resistance 1474.51 now becomes major support. It wasn’t until January 17, 2013 that the SPX was able to advance beyond the September 14, 2012 yearly high at 1474.51. Should the SPX trade below 1474.51 on a closing basis, major support would be broken that would imply further selling pressure to challenge the currently supportive 50-, 100-, and 200-day moving averages.

Lastly, back to the comparison of 1975/1976 to 2012/2013. Figure 1.7 identifies 1995/1996/1997, three excellent years for equities, as deserving of an honorable mention. If not for the January 10, 1996 yearly intraday low, a pattern of three consecutive years of first trading day of the year intraday lows would have been traced out. So far, 2013 is keeping good company.

Figure 1.1 SPX 2012

Source:  Bloomberg

Figure 1.2 SPX 1976

Source:  Bloomberg

Figure 1.3 SPX 2013

Source:  Bloomberg

Figure 1.4 SPX 1975 & 1976

Source:  Bloomberg

Figure 1.5 SPX Turnaround Tuesday, February 5, 2013

Source:  Bloomberg

Figure 1.6 SPX September 14, 2012 high finally breached January 17, 2013


Source:  Bloomberg

Figure 1.7 SPX 1997 – first trading day of the year is the low

Source:  Bloomberg

Figure 1.7 SPX 1996 – January 10 is the intraday low for the year

Source:  Bloomberg

Figure 1.7 SPX 1995 – first trading day of the year is the low

Source:  Bloomberg

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