S&P Retraces Half of its Losses
The S&P 500 closed at 1126 this week — 5 points over the 1121 level.
Why is that significant? Because 1121 marks the midpoint between the index’s 2007 peak of 1565 and its 2009 low of 676. If you prefer to use intra-day peak and trough numbers — 1576 and 666 — you still get 1121 as a midpoint. (Bloomberg has the 50% mark pegged as 1,120.84).
As the Barron’s Trader column points out:
“Enough traders watch this to turn it into a self-fulfilling prophecy: Failure at this key juncture foments doubt, but surmounting it will mean the stock market has recovered half of its bear-market losses, which might validate the recovery and beget more buying.”
A classic “If it goes up, we are going higher, if it goes down, we are going lower” type of analysis.
Here’s a purty chart that shows the numbers more clearly:
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click for larger chart
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Note that the 200 week moving average is a reasonable upside target from here. Worth noting for you chart watchers . . .
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December 26th, 2009 at 1:46 pm
The low volume levels make this point moot. Nothing like a reverse engineered technical rally to suck in bag holders.
December 26th, 2009 at 2:13 pm
hmm.. this is as close to “reverse engineered technical rally”, as GOOG/MSM gets..
http://news.google.com/news/search?aq=f&pz=1&cf=all&ned=us&hl=en&q=S%26P+technical+rally
this
http://news.google.com/news/search?aq=f&pz=1&cf=all&ned=us&hl=en&q=S%26P+reverse+engineered+technical+rally+
pulls Null..
“Take a name..” must be FOS, riight~, as if..
funny, that term isn’t foreign to ‘blogs’..
http://blogsearch.google.com/blogsearch?hl=en&ie=UTF-8&q=%22engineered+rally%22
the MSM, Oz’ Curtain..
when is “Barron’s” going to Trade it’s ‘o’, for an ‘e’ ?
December 26th, 2009 at 2:17 pm
Agree with the low volume.Also,don’t forget even if the market closes with decent volume above 1120,it need’s to breakout on higher volume several day’s after clearing the hurdle.Personally,I don’t believe you can have the damage inflicted{going all the way back to2000}and still not let the market clear{housing,leverage,etc…}of today and feel confident going forward.Two words come to mind,everyone usually overlook’s in the”best of time’s”,”Risk and Reward.”Anyone telling you we have more room to run on the upside,is just looking you in the eye,and bull-shitting you,period!Are you that greedy that you’d believe we have anymore than a few more % to go before all the headwind’s hit with gale force?The fundamental’s will always revert to the mean.Watch for a breakout/breakdown from this point,1120 cannot be denied.The next wave down,when it comes,will be harsh.Secular bear markets don’t end after a few years and certainly not after the mother of all debt laden binges in this countries history.To believe otherwise,to me,is just arrogant.
Jerry
December 26th, 2009 at 2:51 pm
Technical Analysis is based on real trading. I think that trillions of invented money on the buy side directed by the PPT and long-only ETFs have distorted this picture as profoundly as in Lewis Carroll’s ” Alice’s Adventures in Wonderland”. You don’t need a talking weatherman to know that the wind blows.
December 26th, 2009 at 3:55 pm
I’m not a talking weatherman.Just someone with more question’s than answers.I agree with you, but you also need to look at the fundamental’s also.Still here after surviving the P.B.H.G. Growths/Van Wagoner Micro Cap”momentum fueled non-sense of the late90′s,early 00′s.So forgive me for wanting to use both.If the S+P breaks out on heavier volume a few day’s into next week/week after{would be my guess,if it happens} I will agree the trend{momentum}is to be respected{for the time being},but I still hold to the deflationary forces at work.Just beware the herd mentality to all want to get out at once.Bullish the Dollar{next 6 months or so}longer term,we are not in a good place as a country.
December 26th, 2009 at 4:05 pm
The next fib target is 1220 ish assuming this low volume breakout continues.
December 26th, 2009 at 4:16 pm
A “Buy and Hold” till retirement or a traders market?
The Tobin Q rubberband keeps getting stretched and stretched, but like Keynes said about markets irrationally lasting longer than…
http://www.smithers.co.uk/page.php?id=34
December 26th, 2009 at 4:38 pm
Hey Jer3, Thankx for the look.It fit’s my line of thinking to a tee…Now weather or not it happens,that’s another question.But as someone who has been giving the chart’s more and more their due,these level’s and the risk to the downside shouldn’t be ignored…
For what it’s worth,been short{been wrong},but chart’s like this and musing’s by David Rosenberg{Breakfast with Dave}who I totally concur with.I am learning,patience,humility.
I’m new here,lurker for some time,just want to say thanks to Mr. Ritholtz for this great avenue to learn and be heard,congrats for the success with it,all the best to everyone in the New Year….
J.S.
December 26th, 2009 at 7:09 pm
Let me point out that this entire 62% rally, dating back to March 9th ’09, has been on mostly modest volume.
The 6 month, 40+% collapse from Sept to March created an airpocket — its mostly a selling vacuum — and that helps to explain the lite volume.
December 26th, 2009 at 7:19 pm
volume smolume, first off you can’t get 30-40-1 leverage at banks, which means, hedge funds leverage has been cut way down, not only here, but elsewhere, throw in cautiousness and comparing last 3-4 volume levels to know will only hurt you
December 26th, 2009 at 8:06 pm
BR
Please show us the plot that S&P volume has been modest. The volume has been ~5B/day over the year. Similar to 2008 and higher than 2007.
December 26th, 2009 at 9:40 pm
On some days, crapola like C are flipped around like $ 2 hookers for a billion shares via HFT fractional penny games times a million ..I worked on the floor in ’63 and remember when 4 MM shares meant JFK did Dallas..Are you an investa, Maria? Do you know where your money is?
Make sense or follow Mr. Market: number two is beyond words. Just do it and remain calm. No compromise.
December 26th, 2009 at 10:20 pm
Super_trooper:
Goto Google Finance and look at a 10 year plus chart of DIA, SPY, QQQQ, for broad market indicators and then look at JPM and WFC for added effect. Be sure to have volume plots on and you will see what BR and others are talking about. There was massive volume during the Q4 2008 sell off and now as we whoosh higher, we do so on volume that has increasing dried up relative to peak volume around March 2009. Simple review of Econ 101 says that prices will go higher against a relatively fixed inflow of cash demand if supply as indicated by volume decreases.
December 26th, 2009 at 11:10 pm
Simon’s Simple Analysis says … If you had to draw a line on the chart…would a line up look right or would a line down look right? There is not much question in my mind that to create a balanced and aesthetically “correct” looking chart the line has to go down. In much the same way as it had to go up for the last nine months. Further, the chart has started to look wrong and any moves higher from here will amplify the subsequent corrections.
Of course Barry would say don’t rely on your eyes they will lie to you. I agree. Better to wait for the moving averages to confirm the trend than to anticipate it.
We’ve just had a 50% retracement if we have a mere 25% retracement of the advance it would take us to around SP500 850.
December 26th, 2009 at 11:17 pm
I got that wrong. If the market “corrects” by 25% it will go to around SP500 850. A 50% retracement would take us to about SP500 900.
December 27th, 2009 at 1:05 am
We just went thru some deleveraging. So, we shouldn’t expect the same amount of volume on the way back up. (I’m only repeating a counterargument that I’ve heard before and consider persuasive. Since you’ve probably all heard it before, too, why do people continue raising the “volume” argument? What am I missing?)
December 27th, 2009 at 1:07 am
Flipping is back:
http://www.calculatedriskblog.com/2009/12/jim-realtor-flippers-galore.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
December 27th, 2009 at 1:25 am
@ sfharris81
BR’s reference was to S&P 500. The small exception to the volume is the 2008 Q4-Q2 2009 where volume increase significantly. Hence the current trading volume is historically “normal”, not modest. Volume on DIA looks remarkably flat as well. It’s unclear what you are looking at, just 1 year history?
December 27th, 2009 at 4:07 am
The 200-d looks to be lining up with the 61.8% Fib retracement, which may give that a good target.
December 27th, 2009 at 8:07 am
[...] what it is worth the S&P 500 has retraced 50% of its losses. (Big Picture, [...]
December 27th, 2009 at 9:56 am
The guy with the brass balls, David Tepper, maybe started this rally all by himself, so to speak.
In America, there’s always a gambler that wins big, Tepper made 7 billion when he decided that BoA and CitiG had reached their bottom, with the action of U.S. government. He was one of the few buying then:
“I felt like I was alone,” Mr. Tepper recalls. On some days, he says, “no one was even bidding.”
Funny ending of the article I read:
*The author does not own shares in these companies, for she is a moron.
By: Jessica Pressler Filed Under: white men with giant brass balls,
Read more: Hedge-Fund Manager David Tepper Has a Pair of Brass Balls — Daily Intel http://nymag.com/daily/intel/2009/12/david_tepper_made_7_billion_do.html#ixzz0atvlcQLi
December 27th, 2009 at 10:56 am
As long as the S&P doesn’t violate the 61.8% fib level which is around the 1,228.75 +/-, we are in a significant retracement. From a chart reading perspective, we’ve barely gone past the 50% level which is a common occurrence. I look to remain unbiased and just react to what the market provides but this run up seems very suspicious…
December 27th, 2009 at 7:48 pm
[...] Although we’ve seen some push and shove during the last several weeks in stocks, looking at this market over 12 months really tells the story of a bull on the loose since early March. Since then, the S&P has retraced half of its losses. [...]
December 28th, 2009 at 7:16 am
MACRO TECH THEMES Q1 2010
http://trendroom.wordpress.com/2009/12/27/macro-tech-themes-q1-2010/
December 28th, 2009 at 12:12 pm
1. People get taxed if they cash out at a profit but cannot declare most of their losses on the downside.
2. Leverage eats away a big chunk of profits.
3. Including losses, stocks are at record valuations. Without losses, they are in clear ‘don’t buy’ territory.
4. One major reason for strong stocks was record low interest rates. With record bond issuance, TPTB will be hard pressed to keep that going. 5+% 30 yr bonds will look increasingly attractive this year.
5. Gvmt stimulus spending is still fighting deflation so that could delay any equity weakness for 6 – 18 months.
Buy value and be a stingy sob. Don’t pay $183 for a $25 pair of jeans and don’t buy equities that pay no dividend but are trading at 75+ times earnings. And DON’T BUY into a market controlled by a handful of self-interested corrupted oligarchs for the betterment of thousands of gambling addicts (traders/hedge funds). No way for everyone to accrue wealth by clicking keys on a keyboard.
December 28th, 2009 at 12:36 pm
Oh yeah – and as KD mentioned on Tickerforum today and as I’ve long said to non-believing friends – the ONLY reason to buy a stock that pays no dividend is in the hopes that more $$$$ chases that very stock in the future. IOW – it’s a pyramid scheme. You need real economic growth in order to create money or you’re just pushing the price of everything away from the underlying purchasing power of the ‘real’ economy.
December 28th, 2009 at 4:01 pm
If Goldman Sachs is doing God’s work. Let’s all pray they give some volatility back to the markets in 2010. Too much price stability is getting boring. Futures pricing seems way out of touch with the volatility. Seems like we are range bound until premium levels match volatility. What is the VIX trend telling everybody? 10 in 10
Is this the calm before the storm, or the new norm?
January 1st, 2010 at 3:25 pm
Study of the S&P500 chart comparisons, with private notes often omitted by market pundits:
http://tinyurl.com/yeyoxld
This second report was pulled down from one of Morgan’s private servers:
spx comparison_retrace Deluxe Edition price 1200US, for high net worth clients only.pdf
http://sekrit.info/ynxnw
January 4th, 2010 at 4:58 pm
Where might wave 2 end? Here are my thoughts:
–The 200 day moving average is around 1225. Markets seem to return a moving average and then resume the trend; thus the market may return to near the 200 moving average then resume the move down. (Maybe)
–Also, 1220-1225 is the .618 retracement of the move down from 1565 to 676. As most of you already know, .618 is a Fibonacci number. I think Elliot tended to use .618 more than 50%.
–It took 17 months to go from the high of 1565 to low of 676. If the retracement takes .618 of 17 months that is 10.5 months–mid January.
Often there is a move up in stocks during the first 5-10 trading days of January. S&P could go up to about 1220-1225, that’s 8% higher from here. Sometimes it takes only a few days or a couple weeks to move 8%.