MorningWord 10/1/13: Despite the nerve center of the financial markets being situated right here in downtown Manhattan, most market participants in the U.S. have spent the better part of the last 4 months focused on the goings on in Washington. Between the parlor game of trying to decipher the future course of, and leadership of, the Federal Reserve since June, and now the last month handicapping the likelihood as to who flinches first, Congress or the President, in their negotiations to fund the Govt and to raise the debt ceiling, it’s been a tough slog, despite the SPX only being down 3% from the all time highs.
I would add that those looking to tarot cards or the heavens to determine the potential outcomes, they may also want to check the charts, as it appears to me that individual stocks and indices alike are respecting the technicals so to speak. Looking at the one year of the SPX (below) it is fairly obvious that things are kind of going as planned, so to speak. At least the market is pausing at support and resistance levels that one would expect.
So lets breakdown all those colorful lines and see what we can takeaway. First things first, the chart is a work of art, especially when you consider the plethora of headwinds in the last year, but what is clear is that the trend-line from the Nov 2012 lows is very much intact and the index has made a series of higher highs and higher lows. Yesterday’s close was an interesting test of the underlying momentum with the index closing a little more than a point above its 50 day moving average (purple line), after spending much of the morning below it for the first time since late Aug.
A close below the 50 day would likely see a fairly quick move back to the trend-line (white line) which also corresponds with an intermediate support level at 1650, or a little less than 2% lower from here. The late August lows around 1630 are minor support. After that you have the May break-out level of 1590, which also corresponds with the index’s 200 day moving average (yellow line) which it has not closed below since Nov 2012. This level is sort of the line in the sane of the ytd rally, and would mark a 45% retracement from the Sept all time highs.
Unless and until 1590 breaks, this market is still in the bulls’ favor. Each minor selloff has been met with more vigorous buying, so bulls are naturally confident. The market’s reaction (or lack thereof) is just one more sign of that confidence. That will eventually come to bite the bulls in the you know where, but the timing of that comeuppance is the million dollar question.