Technical Set-Up Does Favor A Pullback In S&P 500 Index
Posted in The S&P 500 Index (SPX) on June 29th, 2012 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
In the wake of Goldman Sachs’ recommendation to “short” the S&P 500 Index (SPX) on Thursday, it is worth pointing out that the current technical set-up agrees with that call. After failing to rise above dual “cross” trend line resistance at the 1,363.46 level with overbought conditions present on daily bar charts, a pullback toward a test of key “cross” trend line support now at the 1,265 level appears likely.
Although the equity markets have already weathered the Greek and Egyptian elections, a cut in the Federal Reserve’s forecast of U.S. growth and employment, Moody’s broad based credit downgrade of 15 global banks, a sharp drop in the Philadelphia Fed Index, the 5th consecutive monthly drop in business activity in the Euro Zone, a decline in the Chinese manufacturing index (to 48.1 from 48.5 in May) and a drop in commodity prices (whew!), quarter-end “window dressing” portfolio considerations do not favor equity buying in the days just ahead.
Nevertheless, it is also worth pointing out the CBOE S&P 500 Volatility Index (VIX) never did fulfill the objective of a “reverse Head & Shoulders” pattern that would have been consistent with a more severe decline in the equity prices. Instead, the VIX declined along with daily trading volume. These conditions are not necessarily bearish for equity prices, since the VIX is regarded as a reflection of investor “fear”.
Still, the daily bar chart of the S&P 500 Index does suggest that lower levels are likely to unfold in weeks just ahead. Perhaps expectations that the Supreme Court could overturn President Obama’s proposed health care law, which could in turn spur businesses to initiate hiring activity, have held equity prices relatively steady … notwithstanding Thursday’s 250-point drop in the Dow Jones Industrial Average. Perhaps optimistic expectations for July’s Q2 earnings reports have contributed. That being said, a pullback in stock prices over the near-term is favored by the current technical configuration on daily charts.