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Updated SPX Technical Formation

05/09/2013

 

The S&P 500® Index (SPX) traced out another new all-time high yesterday at 1632.78. Over the past five days, leadership within the index has transitioned to year-to-date laggards: industrials, materials, and energy. I would also offer that an uptick in bullish sentiment seems far more present over the past week than at the beginning of the second quarter.

There is no doubt that the prevailing trend for the SPX is bullish, and buyers will quickly surface on any corrective price action. However, it is important to pay attention to the technical formation, especially for tactical players, as a break below any of the support levels defined below will warrant at the very least lowering allocations to the SPX from the current overweight status. Additionally, given the strength of the prevailing bull trend, it can be expected that algorithmic models are highly focused on these support levels.


NEAR-TERM SUPPORT - Close below 1597.35

  • On April 11, the SPX (Figure 1.1) found a temporary peak at 1597.35. Subsequent price action over the next five days weakened the SPX to 1536.05. That translated into a rather quick 3.8% corrective decline. Over the remainder of April, the SPX rebounded back toward the April 11 high. Finally on Friday, May 3, a better than forecast U.S. labor report was the catalyst to advance the SPX back above 1597.35. The SPX broke out from there, reaching a new all-time high on May 8 at 1632.78. A close below 1597.35 warrants a reduction in overweight allocations.  

        

INTERMEDIATE TERM SUPPORT - Close below 1576.09

  • For those who choose not to reduce current overweight allocations on a close below 1597.35, another well-defined point of reference exists that is relatively close to that level. In October 2007, the SPX traded to a secular peak of 1576.09. In early April 2013, the SPX finally elevated above the five-and-a-half year secular high. What was once major resistance (think ceiling) now becomes support (think floor). A sustained sell-off below 1576.09 should not be ignored; action is warranted. There does not exist another viable support level below this level until 3% lower, at 1530.94, as highlighted in the Q2 Playbook.    


MAJOR MOVING AVERAGES

  • 50-day moving average = 1567.74
  • 100-day moving average = 1523.88
  • 200-day moving average = 1469.30
  • SPX unchanged for 2013 =  1426.19

 

Figure 1.1 S&P 500 Index (SPX) with April 11 high annotated

 

Source: Bloomberg


Figure 1.2 S&P 500 Index (SPX) 10-year monthly chart, with October 2007 secular high annotated

 

Source: Bloomberg

Figure 1.3 S&P 500 Index (SPX) prior 365 days, with 50-, 100-, and 200-day moving averages

 

Source: Bloomberg

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