1121 in the S&P’s a key level
By Peter Boockvar - September 17th, 2009, 5:11PM
With a few weeks left in Q3 and as we look to year end, the S&P’s are approaching the important technical level of 1121 which is the 50% retracement of the entire bear market from the Oct ’07 all time highs to the March ’09 lows. While we may continue in that direction if we can escape the Sept-Oct jinx unharmed, in the very short term and I emphasize short term, the Relative Strength Index in the S&P’s this morning rose to the highest level since Aug 7th. In the two weeks following that date, the S&P’s sold off a modest 3% to work off the overbought condition before the next move higher. This is why the indicator is just short term useful and the market doesn’t have to sell off hard to shake off being overbought.
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September 17th, 2009 at 5:55 pm
That is a reasonable idea.
A sell-off next week after expiration wouldn’t be that surprising, might see 1030 or so – and then we could bounce back as high as 1120 from there, I suppose. Ultimately this really all depends on whether the EUR:USD has any more room overhead, since everything we see here is assumed to be dependent on a dollar carry trade. I suppose the dollar can decline further unless there are significant CB moves or statements on QE that impact FX trends.
September 17th, 2009 at 6:17 pm
Dollar double bottom? I would prefer not but hey!…
September 17th, 2009 at 6:50 pm
1121 wasn’t even on my radar. Nice catch. I had next resistance at 1140… Regardless– lot’s of reasons for the market to take a short rest here. Took a lot of effort to bust through that 1050-1060 area, so a small retrace would be reasonable on that alone. Equity Put/Call ratio continues to be obscenely low… Option expirations usually creates some juggling around early in the following week. Mechanically, a rest next week would set up a final charge up into the end of the quarter which money managers like to put on a good show… I wouldn’t expect more than a day or two rest though… The media built September up into this monster month (which it is historically bad, but then they have all the one year anniversary specials….yada, yada) and people either lifted off the gas going into the month or hesitated committing funds. Either way, the psychological feeling is “I missed something” and it probably won’t let this market go down far…. leftback is probably accurate at the 1030 call, but the buy on the dip crowd may not allow the index to get fully to support levels one sees so easily…
Those preaching the longer term bearish outlook (Rosenberg) are starting to crack on their short term views. Content analysis of his writing indicates a level of exasperation and concessionary tone. Long term the faith in his view is unshaken, but short term Rosie is admitting to even better than he expected numbers that are actually good. Actually, a bear like that cracking on the short term is probably more of a topping indicator than anything else. I do not doubt his long term outlook and think he provokes thought about the current market and economy.
I think it will be hard to fight the trend, the quarter end, and the entrance into a seasonally strong time of the year for the market… Other than H1N1, is there anything brewing of magnitude that could disrupt this move for more than a few days? Anyone? Anyone? Other than waking up to reality?
September 18th, 2009 at 8:32 am
RE: Long term bearishness. Yeah, the bearish cadre is cracking. There’s some hard core perma bears who will never crack, but the bears are basically being beatdown in this rally.
It is actually getting hard to see how the S&P will ever reach a single digit shiller 10year p/e. I mean, the e isn’t going up any time soon. So, if you believe the end of a secular bear is at single digit p/e’s (like I do), you have to be a very long term bear, and you have to really consider how to play this market.
What I’m saying it, answer the question for your self, “how do we get to single digit p/e’s?
I say a likely scenario is inflation with a sideways market. The problem is, this path will take a long time (a decade +). Buying opportunities (undervalued market) will be rare, and will probably only appear one or two times a decade.
So, even if you are looking for the deep value point of this secular bear, it may be at a higher level of the stock market. The “second crash” theory is getting lower probability every day we stay about 880, and below 1240. That’s the range for me.
If we go too high without inflation, a crash gets more likely. But it has to happen sooner rather than later.
September 18th, 2009 at 8:34 am
correction – above 880 and below 1240. [not “about 880…”)
September 18th, 2009 at 8:47 am
Of course, without inflation, we may follow the path of Japan. This is another likely scenario.
So, can the USG debase in a credit deflation environment? Helicopter Ben is determined, and has more ammo then commonly believed.
September 18th, 2009 at 9:17 am
Currencies and equity futures misaligned today, as dollar shows strength. We open up and then sell off very quickly. JOHNNY will probably buy the dips if we have a pull-back to spx 1000 which is now support. But, as usual, it is all about the dollar.
September 18th, 2009 at 9:26 am
@LB – I know you are thinking the sell off will be in equities/commodities. But, it could be in the dollar.
But, the commodities don’t seem to be up like the stocks, so maybe that’s the tell.
September 18th, 2009 at 9:28 am
Based on the yen, I’m with you lefty. Selloff in equities.
September 18th, 2009 at 9:29 am
5 minute rally?
September 18th, 2009 at 9:42 am
Got short at about 9.37, small positions to begin with.