The S&P 500’s 22.86 point gain today put the index above the 1,230 key resistance level that it had been struggling to break above for the past few weeks. As shown below, the index now has quite a bit of room to run before it bumps into any significant upside resistance, which no doubt allows market bulls to breathe a sigh of relief.
The S&P 500 broke 1 more resistance but on 2% below-average volume and on near-resistance momentum. It is now knocking on its upcycle resistance, 80 points or 6% away from its downtrend resistance. It took the index 9 weeks to move from its lowest close of the upcycle (1123) to the current close or 12.77 points/week on average.
Year-to-date the index is in the red at -1.54% and 9.19% below the interim high of April 29.
From an intermediate perspective, the index is 83% above the March 2009 closing low and 20.9% below the nominal all-time high of October 2007.
The most depressing display of math-illiteracy by investors last week was the excitement over a report suggesting that France and Germany had agreed to a 2 trillion euro bailout package for Europe, which triggered a “risk-on” tone for the rest of the week, even after the report was retracted as inaccurate. It was almost beyond belief that investors took that report seriously, but people have become so tolerant of unbelievably large figures that virtually any bailout number can now be tossed out without triggering the least bit of scrutiny. Notably, 2 trillion euros is more than the GDP of France, and is half the GDP of Germany and France combined. Moreover, Europe has just gone through a tooth-pulling process just to approve 440 billion euros for the European Financial Stability Fund (EFSF) from all EU members combined.
So barring new dedicated funds from Germany and France, which had zero chance of being forthcoming, the only way you could morph 440 billion euros into 2 trillion euros was for each of those 2 trillion euros to really be only 22 euro cents of protection. In other words, you could only say that the EFSF would “protect” 2 trillion euros in European debt by limiting the protection to about 20% of face value, without using any of the funds to recapitalize banks or deal with much deeper probable losses on Greek debt (50-60%). Those losses alone will gulp down a large chunk of the EFSF (not to mention post-default needs to stabilize Greece over the longer-term, which the Troika estimates at another 450 billion euros).
Last week, the yield on one-year Greek debt closed at 183%, a new record, and up from 169% the prior week. Yet on Friday, the market rallied on hopes of a comprehensive “solution” to the European debt crisis, and took heart that part of an 8 billion euro hold-over loan to Greece was approved. The 1-year Greek yield pushed 3 percentage points higher. As I’ve noted before, this limited amount of immediate relief is needed to buy time preparatory to a default. A clean solution to the European debt problem does not exist. The road ahead will likely be tortuous.
Economics and FedSpeak:
Chicago Fed National Activity Index
New York Fed President Bill Dudley speaks
Dallas Fed President Richard Fisher speaks
Weekly chain-store sales
August Case-Shiller Home-Price Index
August FHFA House Price Index
October Consumer Confidence Index
Weekly MBA Mortgage Applications Survey
September durable goods orders
September new-home sales
Eurozone debt crisis plan — the unveiling! Maybe!
Weekly jobless claims
Chicago Fed Midwest Manufacturing Index
September pending home sales
September personal income and spending
University of Michigan consumer sentiment index
Plum Creek Timber
Illinois Tool Works
Total System Services
Dr. Pepper Snapple
Cabot Oil & Gas
Procter & Gamble
Varian Medical Systems
Leggett & Platt
Dun & Bradstreet
Cliffs Natural Resources
Advanced Micro Devices
Motorola Mobility Holdings
Coventry Health Care
Apartment Investment & Management