Chart courtesy of FusionIQ
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Kevin Lane of Fusion Analytics makes the observation: As seen in the chart above the S&P 500 stalled a bit yesterday near 1,300 (red line), which also coincides with its 50 day moving average (green line).

Support remains near 1,250 (orange line). For now we appear range bound after the recent crack and subsequent bounce. The one thing that impresses us is the markets ability to snap back considering the events thrown at it over the last several months such as the PIG(s) crisis and the earthquake in Japan. However the increasing volatility is not a positive as it suggest indecision.

Category: Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “S&P500 Update”

  1. cognos says:

    The reason the market bounces is because valuation is quite cheap… 13x CY2011 EPS. Of course, this means all the big cap dividend payers are even cheaper like 8-11x and most have tons of cash.

    Even more so given that this is a classic recovery cycle. I see lousy pundits and economists saying this is a “weak recovery” everyday. My review of the data just does note support this at all.

    Economic data on jobless claims, payrolls, even unemployment… looking ALOT like all the other recoveries… Even more so on ISM, PMIs, things like Philly Fed and industrial production indicies. The overall economic data look mainly just like 1993, 1983 and 2004.

    Poor speculators always doubt the early recovery. Smart speculators are already up 100% and heading up another 100% or more.

  2. Economy flattens out = Fed prints more money

    Is it that the market thinks that the economy’s prospects are better, or that the Fed will continue to print money.

    Chart the S&P in terms of gold and you will see a different picture….

  3. nofoulsontheplayground says:

    Past patterns suggest this corrective sideways/consolidation on the S&P 500 may last another 3-4 weeks before attempting to take out the recent highs. The 1350-1380 area on the S&P is still pretty decent overhead resistance if a move to new highs occurs.

    In 2007 the markets snapped back after the sub-prime scare in Feb. and the Bear Stearns rescue the next month. It was only really after the August 2007 drop that we saw breadth thin out and foretell the coming top in October.

    The NDX was propelled to the highs in fall 2007 primarily by 4-stocks, including GOOG, AAPL, and RIMM. Smart money will be watching breadth again this year for clues of an impending top. So far we have not really seen the necessary weakness in breadth needed for a long term top.

    WTIC is moving up in an attempt to tag the top of the trading box, which is $110/bbl.

  4. stormeye says:

    Spring rally come hell or high water. EU debt crisis, disasters and tragedy, nuclear meltdown, war and revolution, margin compression and supply disruption, peak earnings — that’s all old news. Isn’t time for the chatter about end of quarter window dressing and massive April inflows?

  5. Two charts below for anyone who is interested, the SPX and then the SPX vs Gold….

    http://alaricinvestments.blogspot.com/2011/03/spx-and-spx-vs-gold.html

    Very different picture, and indeed SPX vs Gold is below its 200 day moving average at this point – an indication of the staying power of gold – or – the weakness of US equities priced in USD….?

  6. Super-Anon says:

    The thing that concerns me the most is that politically rising oil prices present a huge obstacle to the Fed continuing to monetize the market higher. Obviously political forces ad nauseum until the side effects generate countervailing political forces. Alas, surging oil prices and political unrest may be the things that finally emasculates the Fed.

    Stagflation + massive deficits is essentially the end game for our monetary system and the “Reign of Bubbles” that has been the past 25 years or so of the Federal reserve.

    I thought it was going to go on longer, but to keep fueling inflation with monetization requires massive borrowing on the part of the government and a relative lack of consequences in terms of generating civil unrest and war. So we may be on the next stage of the historical cycle: commodity hoarding and war.

  7. dead hobo says:

    1) I really like the way you can draw lines on a chart just about anywhere and come up with a story and a set of reasonable relationships that support the story. Especially if you toss in a liberal number of mights, coulds and possibles.

    2) Cognos, no disagreement about what speculators can expect, although 100% soon may be a stretch. I think things might stagnate when the Fed announces last call in June. I wonder if the party will move to an after hours club and slowly trickle home a little while later. The $500B or so from Japan is a gift. That should muddy the exit waters enough to keep drinks flowing.

    3) Cognos, I’m not a speculator, I’m a reasonable risk takes who will never invest in anything that doesn’t make sense. I’m a somewhat old fart who needs my cash to live on. Markets rising several percent a day with regularity on the worst news imaginable while the Fed disavowed any tinkering in asset prices was too much for me to chance. Everything looked crooked back then. Still crooked, actually.Nobody except someone who could afford a big loss or someone who knew the fix was in would have invested in that. Today it looks like a combination economic recovery and a party bought and paid for by the Fed. I’m expecting a dip sometime after the Fed shuts down QE2, but I’m also expecting the recovery to continue after price discovery is complete. There are a lot of people like me who are moderately risk averse. But I’m sure as hell not 70% cash. I’m 90%+ in since late last year / early this year and still up even after the dip.

  8. dougc says:

    Don’t hgave an opinion on market direction but as to whether it is cheap based on forecasted earnings the shiller cyclically adjusted PE WAS 24 recently and historically you can expect 3 % a year returns over the next ten years.

  9. rootless says:

    cognos wrote:

    The reason the market bounces is because valuation is quite cheap… 13x CY2011 EPS.

    Based on cognos’s “valuation” metric, stocks are supposedly cheaper today than in March 2009 when the market was at its cyclical low after the crash, since the PE-ratio based on 12-month “operating earnings” was higher than 18 back then. What a crappy metric.

    Even more so given that this is a classic recovery cycle. I see lousy pundits and economists saying this is a “weak recovery” everyday. My review of the data just does note support this at all.

    Strangely, he never shows his data to the audience, which he has allegedly “reviewed” to come to his conclusion. He always makes only assertions. On the other hand, if one shows real data with source that can be checked, like the earnings data published by S&P, but contradict his assertions, then he postulates those data were “bad”.

  10. market_disciple says:

    Don’t know if this is right or wrong, but I already got out of my long position on US equities on Monday. Right now I’m just long silver and Nikkei. IMHO, S&P 1,250 would probably be retested before earnings season kicks off in a few weeks, which should provide a decent entry point for another round of long position. If there’s no extremely negative news from the Middle East, Japan, or Europe, there’s a good probability the S&P would even make a new high of 1,400 if it can break out higher from 1,300. Then I would personally be cautious for “Sell in May and Walk Away” phenomenon.

  11. Ivan71 says:

    Sell in May and walk away may have a new meaning this year, given Fed actions in June.

  12. cognos says:

    Rootless –

    Your numbers continue to be BAD.

    You say above, SPX was at 18x operating earnings in March 2009? (!?! Just bad numbers). So lets call it 700 on SPX… and divide by 18… you get $38/shr.

    So you think SPX earnings the previous 12-months were $38 at that time?

    And you call these “operating earnings” (is that bad?) and thus suggest even these are inflated?

    And so now… since last year we did $87/shr on SPX earnings… we have grown earnings over 100% (based on your numbers?)… hell that bad logic seems very bullish.

    Again, you consistently see, state, and cite bad numbers. There are lots of number out there. Lots of poor speculators and bad journalists. The idea is to FILTER for the good, important data.

  13. cognos says:

    Dead Hobo — You agree good speculators are already up more than 100% from the bottom yes? The next 100% will take another 2 or 3 years. (This is kinda a truism, right… good speculators avg up 100% every 3 years… at 24% per year).

    The core point… is that good speculators tend to be in the trade EARLY and bad speculators doubt long enough that its topping by the time they want to join the run. Dont be LATE. One must not cultivate the mindset that “if it goes to 1,400, then I want to buy”. One always wants to buy at lower prices.

  14. rootless says:

    @cognos:

    You say above, SPX was at 18x operating earnings in March 2009? (!?! Just bad numbers).

    You have to read carefully what others write. I say above that 18x operating earnings is what comes out for March 2009 when YOUR valuation metric is applied, i.e., taking the index divided by 12-month operating earnings as a measure for the valuation of stocks. If you think that this number is BAD, then it is because YOUR valuation metric is BAD. According to YOUR valuation metric stocks are cheaper today than they were in March 2009. And they were cheaper in summer 2007 then they were in March 2009.

    So you think SPX earnings the previous 12-months were $38 at that time?

    I refer to the data as published for March 31, 2009. These data are $43 operating earnings for the previous 12 month and an S&P500 index value of 797.87, which makes an PE ratio of 18.56 based on 12-month operating earnings.
    (Source: Standard & Poor’s, http://tinyurl.com/6al3cbt)

    And if YOUR valuation metric produces crap and gives false signals, using the data published by S&P, then it’s not because these published numbers were bad, it’s because YOUR valuation metric is useless for the evaluation whether stocks are cheap or expensive.

    You must have lost tons of money from summer 2007 to March 2009, if you based your investment decisions on YOUR valuation metric.

    And you call these “operating earnings” (is that bad?) and thus suggest even these are inflated?

    What else should I call them? Since you allegedly work in the financial industry, it surprises me, if you don’t know that there are two types of earnings released to the public by the companies in their quarterly press conferences. There are the “operating earnings”, which make the headlines in the news most times, and then there are the reported earnings based on GAAP. The GAAP-earnings as of March 31, 2009 were about $7 for the previous 12 months. (Source: S&P). “Operating earnings” are systematically biased higher than GAAP earnings, on average something between 10 to 20%. “Operating earnings” contain even less information than GAAP earnings about what cash flow an investor can expect from buying and holding shares of a company, since a lot is being subtracted between “operating earnings” and what stream of cash an individual investor really gets out of it.

    And so now… since last year we did $87/shr on SPX earnings… we have grown earnings over 100% (based on your numbers?)… hell that bad logic seems very bullish.

    You apparently don’t get that this just shows what a total crap YOUR valuation metric is, since according to YOUR valuation metric stocks were more expensive in March 2009 than they are today. In contrast to YOUR valuation metric, a useful valuation metric would have to indicate that stocks were much cheaper in March 2009 than they are today, and that stocks were much more expensive in summer 2007 than in March 2009. The result from applying YOUR valuation metric is just the opposite.

    So why should anyone who has a clear mind, trust your valuation metric to evaluate whether the current market is cheap or expensive?

    Again, you consistently see, state, and cite bad numbers.

    Here we go again. I cited the earning numbers published by S&P’s. Applying YOUR valuation metric to these numbers produces bad, absurd results. You don’t like this, so what is your conclusion? Your conclusion is not to question the usefulness of your own valuation metric. Instead, your conclusion is that the numbers published by S&P must be bad, and you try to blame me for using those published “bad” numbers. (Like the deniers of anthropogenic global warming who regularly assert that the data published by climate scientists must be flawed or even forged, if those numbers contradict the preconceived believes of the AGW deniers).

  15. cognos says:

    Rootless –

    The S&P people mIght have bad data on earnings.
    Or you might be reading it wrong?

    The latter seems likely (or both) since op earnings do not fluctuate from $90 to $40 to $90.

    I don’t have you problems bc I don’t use your BAD data.

    I have op earns around $60 for March 09.

    Further, calling “forward” earnings is always what matters. This is highly subjective. Some seem to be able to do this well. It’s a simple “business cycle” thing. This is the recovery.