S&P 500 Review
In our office, we've been using the Fusion IQ quant system for so long, we know it inside out. We use it as the basis for our institutional trading and published research (up ~10% for the year).
Subscribers have asked us to include our market and stock commentary -- beyond the pure neutral software application. In addition to the tools index rankings, there is also an "S&P 500 Marketometer" -- an intermediate term gauge of the S&P 500’s internal health. We use this as the basis of our own market review. As requested, we include our own application of the quantitative equity ranking system. This means in addition to the equity, index and sector work, we upload our own technical and macro commentary, too.
My partner Kevin Lane is a well regarded technical analyst who built his reputation recommending Enron and Tyco be shorted long before it was fashionable. He is usually the yin to my yang, bullish to my bearishness. Here is his most recent technical commentary about the S&P500:
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S&P 500 Index (SPX) - Daily Chart (1999 to Present)
As seen above the S&P 500 broke through what was once a solid support area (green lines and maroon dotted circle) in the last few days of trading last week and continued falling. This support break was critical as it sent a message to market participants that this corrective phase is not yet over. The next support zone for the S&P 500 now comes into play in the 1,015 to 960 zone (blue dotted lines). At these lower support levels, particularly the 960 level, we would likely see a powerful rally set up as the S&P 500 would hit support while also being deeply oversold and more than likely have absorbed a massive selling purge. These aforementioned factors along with a likely new 10-year high in the VIX (if this lower support level is hit) would suggest negative sentiment had peaked.
Trend, Breadth and Momentum are all bearish; Liquidity is bearish to neutral. The only element that is remotely bullish is Sentiment.
As we said to clients early last week (prior to these supports being violated) market internals and momentum were all very negative and the path of least resistance would remain down.
This still remains the case.
Monday, October 06, 2008 | 06:00 AM | Permalink
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Comments
holy crap, check the euro markets, they're crashing hard now, nearly 6% down!
Posted by: steve from asia | Oct 6, 2008 6:03:59 AM
The world burns and America sleeps...
Will we hit the nyse trading limits ths session?
Posted by: steve from asia | Oct 6, 2008 6:16:42 AM
"... a massive selling purge ..."
This sucker needs to crash, don't it?
On any ordinary day, the probability of a crash is perhaps one in 10,000.
I would guess that during this week, the likelihood of a crash (>10% "circuit breaker trip") is in the range of 10 to 20% -- still not "probable;" but a very significant finite likelihood.
Sell, Mortimer, sell!
Posted by: Jim Haygood | Oct 6, 2008 6:54:57 AM
Not surprisingly, the Wave III (or C wave) 1.618 extension of Wave I (or A wave) takes you down to 924. The log scale 1.618 extension is 1020. So, some other technicians would also call for some kind of bottoming action into the 924-1020 zone. I know it's a wide zone. Hopefully I can give a more exact target as the price action unfolds.
I think the entire market is expecting a rate cut very soon.....it should be a classic sell the news event.
- AT
Posted by: Andy Tabbo | Oct 6, 2008 8:13:40 AM
Do you see S&P 960-ish (Dow 9000) as the bottom or just another short term bounce?
Posted by: Kent | Oct 6, 2008 8:50:13 AM
the world burns and America watches Sunday Night Football and Funniest Home Videos...
do not attempt to adjust your tv set
Posted by: Bob A | Oct 6, 2008 9:02:36 AM
BR: Here's a breaking news item - or at least one that hasn't yet broken. S&P is going to cut their dividend outlook for the S&P 500 through 2008 soon. Anticipation of how much that will be is likely driving the markets today.
They had pegged dividends per share for the S&P 500 at $30.30 for the year (last December), but it will now come in at least $0.66 per share below that. S&P currently shows the quarterly dividends for the first through third quarters of 2008 at $7.09, $7.10, and $7.04 respectively, which means that fourth quarter dividends would need to be $9.07 to hit the $30.30 mark.
That would be the largest percentage gain in quarterly dividends per share from the previous quarter in the last 20 years, 28.9% - the next highest is an increase of 17.0% going from September to December 2003. That's simply not going to happen. It's just a matter of time before they officially slash their outlook.
Posted by: Ironman | Oct 6, 2008 10:12:01 AM
Jim Cramer told investors on the Today show this morning to sell any stocks representing assets needed "within five years."
If Jim Cramer is the face of the last Bull market's sentiments, he may well mark the end of this Bear market in kind...
By the way, I only say this partly in jest. It will be interesting to see if Mr. Cramer marks the bottom (or near it)...
Does anyone here believe that it has ever been foolish to make the opposite play as Jim Cramer?
"Courage is knowing what not to fear." ~ Plato
"All know the way, few actually walk it." ~ Bodhidharma
"The world is so constructed, that if you wish to enjoy its pleasures, you also must endure its pains." ~ Swami Brahmananda
Posted by: The Financial Philosopher | Oct 6, 2008 10:35:25 AM
Do the predictions for the next support level take government meddling with rules into account? Presumably shorts taken out at the start of the decline would be covered at that level, and as there's no short demand, wouldn't that monkey with the model for that level?
Posted by: Dr. Kenneth Noisewater | Oct 6, 2008 10:48:10 AM
Having been burned badly by technical analysis in the last stock market crash, I no longer put much faith in it. It is pretty obvious that technical analysis can only tell you about the past. Exogenous changes in the system, particularly those from outside the financial world (I know, I know, heresy) are completely unrepresented in any technical analysis.
Despite that, I do often end up doing at least a bit of cursory chartism. To this un-expert and wholly unbelieving chartist the support being shown in your charts looks mighty thin. It doesn't look like history is showing those stable points to be all that stable. Said another way: the real world has only called those points an equilibrium very rarely. So? Odds of crashing through that 'support', given the massive exogenous changes in the real world, that are finally being incorporated into financial market data are.... high.
Posted by: ViewFromTheWilderness | Oct 7, 2008 9:14:43 AM
The support level at 960 is very week and close. It will not be able to hold the rocket that is approaching it. Based on the magnitude of crisis we are at, the major resistance at 770-800 level is the best chance we have.
Posted by: StockAnalyst | Oct 7, 2008 11:10:35 PM
I just listenened to Alec Crickson on BBC "Today" program (approx 7.20 AM)indicating Peter's point .,,,, This page) about "Credit Default Swops).He estimates these at roughly 62 Trillion Dollars with 200 billion dollars outstanding for lehman brothers alone.
Alec presents a good interpretation of what these swops actually are.You might want to stay under the duvet if you realize who has to pick up the tab for this grand foolishness!http://news.bbc.co.uk/today/hi/default.stm
Posted by: greg | Oct 10, 2008 12:02:12 PM
