Skip to comments.S&P 500's close eyed as index near November lows
Posted on 02/27/2009 1:15:06 PM PST by 6SJ7
Dow Jones Industrial Average headed to worst February point drop in history
NEW YORK (MarketWatch) -- As stocks on Friday meandered to another month of losses, investors were especially focused on the S&P 500 Index and whether the broad market gauge would close above or below its November lows, with a finish above 740 to 750 seen as a victory of sorts.
"Only on a two-day close below 740 will I run for the hills. A close over 740 today would be considered a successful test of the November 2008 low," said Elliot Spar, market strategist at Stifel Nicolaus.
The S&P closed at 752.44 on Nov. 20, though the benchmark on Monday undercut that prior bear-market low.
"Hopefully we can get back to 800 on the S&P, but first we have to get past resistance at 752. If we can close above that one resistance level I think it would be a mild positive," said Robert Pavlik, chief market strategist at Banyan Partners LLC.
(Excerpt) Read more at marketwatch.com ...
A pattern is developing.
We closed at 735.09.
These guys who have been holding out hope, continually changing their parameters for a violation of the November lows — they have no more excuses. If we don’t go up BIG on Monday, you’re going to see some serious selling action as people lay on the mother of all shorts from here on out.
I went to google to check the DJIA and this ad was beside the final numbers
“Bear Market got you down?
Invest in your customers! Send them
elegant Greeting Cards as thanks.”
I hope he’s slipping on the Nikes ‘cause it closed today at 735.09.
Spar better start pulling his “Iron Maiden “ routine and “ Run To The Hills”
after bell s&p was at 737.
DJIA down 26.6% since 0bama was elected.
He hasn't had the time to prove that yet.
He won't surpass Jimma' Carter until at least next month....
“Meandering” is a pretty funny and understated way of putting the free-fall the good old United Socialist States of America is now undergoing.
Wasn't that conveyed strongly enough by "the one" that it's "Bush's" fault?
I always get a kick out of technical traders and all their arcane plots and graphs. And any serious trader should pay attention to those charts and graphs, so as to be able to take advantage of the technical trader who might take a predictive action of buying soon after a double mountain that transcends the projected uptick of the 300 day moving average...
Worst President (usurper)
Ya know, Perdogg, I’m starting to believe the “run for the hills” talk on the market & economy. I keep hearing that the GE mess (dividend cut but will still lose their AAA rating)is going to just be the first of many major companies. It’s going to get worse...how much worse is the question.
Thank God I'm in the S&P then. /sarc
My “moving average is about twice a day; the market is in the crapper.
I simply don't see how individuals will return to mutual funds over the next several years.
Once home values stabilize, the next shoe will drop...commercial real estate. There's a lot of vacant office buildings and mall space out there, and the debt service has to be paid.
The indications are that commercial is going to drop in the next several months....houses aren’t going to stabilize ‘til late 2010, if then.
I always get a kick out of technical traders and all their arcane plots and graphs.
Technical indicators are worthless if the world changes under your feet as we have seen ,, without this march to Socialism and the degradation of our currency technical indicators are very useful in determining buying pressures on even a simple price chart with volume.
This isn’t an arcane plot or graph. This isn’t some rohrschach test by looking at a picture or graph.
This is the market selling off to a level below the “panic low” of November, when every day we woke up, there was some new Big Event that broke a lot of assumptions about how the world of finance would move forward. Those lows in November were set with some very, very high volume, which marks them as important bottoms - the turning point in an index or in a stock usually happens when the selling becomes frenzied and panic’ed. And that certainly was the case on 11/20 and 11/21.
Today, we had elevated volume, 2:1 on the downside, but not a panic. The volume on the SPY’s was double average on 11/20. Today it was barely above the 20-day average.
This was calm, deliberate selling into the close - this indicates that people are calmly making an assessment of the future of the market, and the future is lower from here.
There have been far too many optimists claiming that the low was set in November - some of them here on FR - who are still not taking into account that this is no mere recession. It is a debt deflation. We haven’t had a debt deflation since the 1930’s, and before that, since 1873. Debt deflations do not act like recessions, and all this happy-talk about how we’re going to turn this around so by the end of 2009 is increasingly unrealistic when we examine the history of debt deflations as our guide, and the possibility becomes even more remote as the business sector sees the Obama administration’s plans for business. Obama is repeating some of the same mistakes that FDR made.
The optimists have only Monday to convince anyone that this is a “failed penetration” of the November low - ie, Monday would have to be a pretty big up day, needing to push the SP500 above 742 or so into the close. If we were really going to be convinced that the November lows were going to hold, we’d need to see it pop back over 752.44 really quickly, and on heavy volume.
Otherwise, the optimists will lose their optimism and conviction and they’re going to start selling, and those on the short side are going to press their shorts and down we’re going to go, hard and fast.
My brother is convinced the majority of the companies in the S&P 500 will go bankrupt in the next couple of years. He thinks the Index will fall to 250 or lower by the end of this year.
That sounds absurd, but who knows?
I wouldn’t be buying any stocks right now, that’s all I know!
More than that, TA is useless when so many stocks in the index(es) are being kept in the index in violation of prior criteria for inclusion and retention.
eg, there are five stocks now in the DJIA that should be replaced - AA, BAC, C, GE and GM.
The SP500 has dozens of stocks that no longer meet the capitalization requirements for inclusion - and they’re still in there.
The best we can do is simply look at price levels relative to prior lows and volume. Chart patterns on indexes are broken. TA on any banking or finance stock is rendered useless by exogenous events in the credit markets and Washington DC.
One set of chart patterns that ARE useful are the patterns from 1930. The only difference between now and then is that we’ve gone down harder, faster, than the market did in 1929/1930 - but those charts show how the market makes small, 10 to 20% counter-trend rallies on the way down.
Last month, I would have said “Nonsense.”
Increasingly, I’m not entirely certain.
Obama’s announcement that cut the legs out from under the pharma, biotech and health care sectors was a Real Big Deal. Those are considered “defensive” plays in recessions and downturns - and if you look at their charts, you can see a whole lot of money being pulled out, FAST.
The whole global warming cap-n-trade nonsense and fees, could spark a selling wave in utilities.
"Only on a two-day close below 740 will I run for the hills. A close over 740 today would be considered a successful test of the November 2008 low," said Elliot Spar, market strategist at Stifel Nicolaus. "
It does sound absurd but reality is the DJIA going from 14,000+ to 7100 in a year+.
With CITI in the news, more stress tests coming and banks going under, with rising unemployment (wait til the 1st quarter GDP comes out) plus the global meltdown in banks/exports I don’t know anymore.
And I’m normally Mr. Positive.
I’m becoming more and more convinced that they want to destroy Americans’ 401-k’s and IRA’s and force a new, government controlled retirement system on us, parallel to Social Security; a system which would invest workers’ contributions in Treasury bonds to continue to fund the expanding debt.
Am I crazy to think this? And could they do something like this?
Right. Got that.
I have some bad news for this guy. As market stats go, an up Friday leads to increased chances of an up Monday. Not a huge overwhelming increase, but a measurable increase.
A down Friday greatly significantly elevates the probability of a down Monday.
And during market ‘crashes’ - down Fridays are a VERY bad thing. When the market violates an important downside level on a Friday, Monday and Tuesday of the following week are absolutely treacherous. Having a market violate various support levels on a Friday gives people too much time to think about it over the weekend, whereas in the middle of the week, eh, people will wait for confirmation, they’ll put out test trades, etc.
During the middle of the week, this fella would be more right than he’s wrong.
But with the market closing as it did today... the chances for a rally on Monday are statistically very slim indeed, which would make a reversal on Monday all the more powerful, because it is more improbable. Traders and pro’s on Wall St. are going to be very apt to pull the trigger to sell on Monday, because they know these stats too.
Thanks. I’ll be watching the S&P closely Monday.
Similarly, the Nikkei took about 2 years to fall past its 50% point, dropping over 80% total, then almost returned to the 50% level within 17 years, but the current crisis prevented a return to high-water mark levels:
This is very interesting stuff. I thank you profusely for posting these graphs, and I’ll be referring people to your post.
Here’s several things I’d like to point out to people about this:
1. While the SP500 has certainly dropped in recessions and market panics (eg, 1987), before, the fact that it has dropped nearly as far in both debt deflations in nearly the same amount of time is a very curious coincidence. It is one of those things that makes a person go “Hmmmm” — not “Hmmm — that’s funny” but “Hmmm” in a very serious and quiet sort of way.
2. If we look at the overall cycles within both the 30’s decline and this decline, we see similar waves of selling and let-off in the selling pressure — very close in timing. This is a most curious coincidence, because there’s nothing similar about the two underlying market conditions - ie, the markets were open a half day on Saturdays back in the 30’s, there were no options on stocks or indexes, there were no ETF’s, much less double-short ETF’s etc. So the fact that we see very similar timing in the selling pressure on the index... most curious. It means that only human nature can be the underlying cause, because it is about the only thing (aside from the underlying debt deflation) that is the same.
3. The bank failures in the 30’s depression didn’t start in earnest until 1932, and they were NOT driven by losses on the stock market.
4. They had higher gearing in ‘29, and today we have double/triple short ETF’s.
For the whole thing to come out this close in drop and duration... very, very interesting.
Yes, today I moved a respectful sum out of the S&P. Obama/Congress doubled down on wasteful spending and tax increases. I doubled out. Once the the market bottoms out and our government has come to its senses (because we kicked their lovely tushies out of office) I'll move my money back in to the market. Until then I'm closing up shop....no spending, no nothing except for the basics. I'm in a good position to outlast these parasites.
Do you hear me now President Obama?
Sanchmo, very informative graphs. Thanks a bunch.
I'm not a very good trader, not extremely successful at anticipating & timing short-term movements. I tend to invest in long-term trends. I was completely out by early October at about Dow 10k, with the same expectation that the crisis would take a while to work itself out and by 2010 I would be in again somewhere near the bottom.
But since about December my outlook has become much more pessimistic - we have too many imbalances between what the global financial system can survive, what the global economic system can profitably support, and what political systems will tolerate, and I think we have just started to see the acceleration of the unavoidable unravelling. And while this resembles the contained crises of the 80s and 90s (due to our internally focused media), its global scope is starting to more closely resemble 1900 and 1930. Certainly, we haven't seen this type of situation in our lifetimes.
Just to be clear, this is not Armageddon, we can make it through it (some individuals and some companies better than others), and this country has gone through a lot worse than this in the past 200+ years. I never make decisions that limit my freedom of action in case I am wrong or in case conditions change, esp in this case. But I believe that anyone who isn't already preparing for a decade full of changes that just 1-2 years ago were unthinkable... that person is gambling against the odds.
“My brother is convinced the majority of the companies in the S&P 500 will go bankrupt in the next couple of years. He thinks the Index will fall to 250 or lower by the end of this year.”
Oh for the days when I was young and naive and I thought the “S&P 500” was a stock car race that they ran every day.
Yes, although my point was not so much about the extremely similar timing of the internal swings, but about the overall secular trend. Specifically, that we have had 2 close parallels to this current situation in the past century - US 1929, Japan 1989. And the very recent NASDAQ dot-com bubble was somewhat similar, way too close for comfort, and I have always believed it was part of a more fundamental secular bubble-bust trend that was partly delayed (but not really avoided) by Greenspan. The results of all those were a minimum of a 40%-50% loss for over a decade, and bottoms somewhere in the 60%-80% loss range.
That (admittedly simplistic) view suggest trading ranges over the coming decade of S&P500 @ 500-700 & Dow 5000-7000 (which would mean we're just now entering the **high-side** of proper valuation!), and I don't don't see how earnings or demand for stocks or current policy can change that right now.
This is (will be) the 2nd day below 740...
Pay attention to the TRIN and TICK. With the indexes as lopsided as they are, you can see the DJIA go down while there is buying going on in non-index stocks. Looking at broader indications of buying volume vs. selling volume expose a divergence between the index and the whole market...
Good for you. Me too!
Am I crazy to think this? And could they do something like this?
No, you're not crazy. Yes they will try. The rule of law is DEAD in this country and they are not even attempting to pay lips service to the Constitution (see DC's Congressional representation for an illustrated point).
This is a coup in progress by the communists.
You are correct. When do we do something?
I honestly wish I knew. Still thinking about it.
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