S&P500 In Recovery Phase

S&P500 moved back above its 50 day moving average thanks to market strength for the past few days. Initial US jobless claims that were less than expected drove market higher. However there are a number of downside risks and the economy remains fragile at this stage. There seems to be a lack of business, consumer and investor confidence that is needed to push the market higher. Credit growth in the US is still declining and that is limiting economic growth.

The phase chart has endured a bearish attack with the index now in “Recover” phase. The next resistance is at the 200 day moving average at 1115. The index does not seem to have enough momentum to clear its 200 day moving average. The market is likely to trade within range of 1020 and 1120 for the time being

S&P500 Dead Cross

The dreaded dead cross where the 50 day moving average goes below its 200 day moving average appeared on the chart of S&P500 index. This brings the index into “Bearish” territory based on the phase chart.

The Dow Jones Industrial Average has confirmed its head and shoulder pattern and this gives a downside target of 8500. Similar head and shoulder pattern is also appearing on the S&P500 chart.

All these signs point to further weakness in the market.

S&P500

US market closed higher on Wednesday with the S&P500 index ending at 899 points. S&P500 rebounded from a low of 741 (on 21 Nov 08) to a high of 918 (on 8 Dec 08), a 23% move in a span of 10 trading days.

The index is now about 20 points away from its 50 day moving average. If the index is not able to penetrate its 50 day moving average convincingly, then the downtrend will resume. Resistance is at 920 and 1000 points respectively.

The slope of the 50 day and 200 day moving average is still sloping downwards. If the slope of the 50 day moving average is able to turn up and the index is able to move above its moving average, then the chances of having a sustain recovery is stronger.

Let’s see how the index behaves in the next few weeks.

S&P500 Phase Analysis

US market performed well this week. The S&P500 index was up 37 points (2.6%) for the week to close at 1425.

We have mixed economic data on Friday. Housing starts for April exceeded economist’s expectation whereas the University of Michigan consumer sentiment survey reading for May was below estimates.





The market looked to be heading towards triple digit losses for the Dow but buying in the afternoon pushed the index back near the unchanged mark.

The S&P500 is still in “Recovery” mode and the index is now testing the 200 day moving average of 1427.

If you look at the daily chart for the S&P500, the index looks bullish based on MACD and slope of the Bollinger band.

My personal opinion is the index will break the 200 day moving average soon and the index will be moving to “Accumulation” phase.