S&P 500 Index Analysis

Sept. 30, 2010

Analysis:

On Sept. 27 the Analysis predicted that "the market has found its short-term top at 1,150." Today all economic statistics came in better than the consensus, especially the Chicago PMI exceeding the consensus by a large margin. The market broke through the resistance at 1,150 to a high of 1,157, but once the Bears covered their short positions, the market dropped back below 1,150 and spent the remainder of the day in red. Moreover, nine out of the 10 S&P 500 sectors declined, signaling the breadth of the market retreat. The financial news quotes market pundit giving the reason as "the end of quarter rebalancing," but the real reason is that "the market has found its short-term top at 1,150." The Bulls should consider taking profits, not because being bullish is wrong, but because a reaction will give the Bulls an opportunity to get in at a lower price.

Looking ahead to tomorrow, the Consumer Spending will disappoint, and the core PCE index will be flat or negative, as retailers lured shoppers into buying with large discounts in Aug. The market mover will be a disappointing ISM manufacturing index. Just as a positively surprising ISM manufacturing index on Sept. 1 laid the foundation for the current "stealth rally," a negatively surprising reading tomorrow will further reinforce 1,150 as the near-term market top.

Strategy:

Hold short at 1,122
 
Optionpro007,

Thank you for your question.

You got me this time!

I have to confess that I "plagiarized" this phrase from a financial news article, as you can see it appear in quotation marks. I can only surmise that it means that since few people had expected a market rally of this magnitude in Sept., the rally is "stealthy." Beyond that, I have no answer because I did not coin this phrase in the first place. Thanks.

Dr. Chen
 
Oct. 1, 2010

Analysis:

Yesterday's Analysis predicted that "a negatively surprising [ISM] reading tomorrow will further reinforce 1,150 as the near-term market top." Today the market opened higher to push towards 1,150, but the slightly disappointing ISM manufacturing index put a top to the market's advance at 1,150. Looking ahead to next week, no economic news is likely to be so upbeat as to catapult the market above 1,150, and given the market's expectation, any disappointing news will bring the market back to the summer trading range below 1,131. In all likelihood, the market will attempt to stay below 1,131 before rallying from a point below 1,131 to soar above 1,150.

Strategy:

Hold short at 1,122
 
nfamousyoungest,

Thank you for your question.

The event that causes the dollar weakness directly affects the S&P 500 index, rather than the resulting weak dollar in turn affects the market. For example, the Fed's increasing money supply positively affects the market and also causes the dollar to weaken, rather than the weak dollar caused by the Fed's action in turn affects the market one way or the other. Thanks.

Dr. Chen
 
Oct. 4, 2010

Analysis:

Friday's Analysis predicted that "the market will attempt to stay below 1,131 before rallying." Today the market did drop below 1,132 before bouncing off the support to settle lower. It is a matter of time before the market breaches the support and closes below 1,131. Neither the Factory Order nor the Pending Home Sales is positive enough to prevent a market retreat, as the Bulls resign to the fact that 1,150 is the market's near-term top. Looking ahead to tomorrow, the ISM non-manufacturing index will not deviate much from the already subdued consensus, and the market will be driven by events in Europe and US corporate earnings guidance.

Strategy:

Hold short at 1,122
 
Oct. 5, 2010

Analysis:

On Oct. 1, 2010 the Analysis predicted that "the market will attempt to stay below 1,131 before rallying from a point below 1,131 to soar above 1,150." Yesterday the market got a fraction of a point above 1,131 and today soared above 1,150 convincingly. This is a perfect example to illustrate the trading adage that "the last few ticks of profits are the most expensive ones to earn." The market soared because it found a bottom at 1,131 yesterday. Today the uncertain sentiment turned bullish to break the resistance at 1,150. Looking ahead to tomorrow, any market retreat towards 1,150 should provide an opportunity to get long.

Strategy:

Offset short at 1,156 for a loss of 34 points
 
Oct. 6, 2010

Analysis:

Today the market's performance was disappointing to the Bulls, as it failed to build on yesterday's momentum but instead tried to drop back towards 1,150. The IMF lowered its forecasts for US growth this year and next, and the ADP survey cast doubt on the sanguine employment expectation of private payroll increase on Friday. Looking ahead to tomorrow, the Initial Jobless Claims will stay above 450,000, and the market will also take direction from Alcoa's earnings report as the first shot of the Q3 earnings season.

Strategy:

Sold short at 1,157
 
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