S&P back below resistance… or is it?
**UPDATE: In terms of intra-day minutia, this downward trendline from the August high keeps popping up. You can see in the S&P Futures (ES) chart, that it has been repeated support and resistance over the last three days as the S&P flirts with breaking to the upside.
From a broader perspective, the S&P broke slightly above its trendline resistance and the 200 day moving average last Friday – not enough to be conclusive. Monday brought no clarification and Tuesday brought a sharp decline. The sell-off wasn’t conclusive short-term topping action though, as it looks different depending upon whether your looking at SPX (S&P Cash) or ES (S&P Futures).
The chart above was the Futures, as is the one below (2 years), where the S&P broke solidly below the August-now downward trendline. You can see Tuesday’s sell-off took ES solidly below the trendline. We noted above that on Wednesday, the S&P Futures are testing to break back above that line. It’s also notable that the volume in this latest rally has been profoundly lacking (and declining as the price has increased).
The SPX hit a price level (1265) that had been support (through summer) and has since been resistance (in fall) a few times. It is now sitting close enough to the downward trendline that formed the upper line of the pennant that it may act as support here. The SPY chart looks more similar to the SPX chart, with the trendline looking more like support than resistance.
All told it’s fairly inconclusive. Plus there the joyous subjectivity of where trendlines are drawn as well.
So we’ll step back and look at the bigger picture. A couple of ratios are still suggesting longer-term caution, in my opinion. First Consumer Discretionary (XLY) divided by Consumer Staples (XLP), which provides a hint regarding the degree to which “animal spirits” are evident in consumers. As you can see, this ratio has actually been declining throughout 2011.
And High Yield Bonds (JNK) divided by 30 Year Treasuries (TLT), which shows the amount of risk bond investors are willing to take. As you can see the ratio hasn’t rallied anywhere near as much as the S&P since the initial August/September sell-off.