Home > Uncategorized > 2012/01/19: Critical Macro-Technical Decision Looming for the S&P 500 …and the Rest in Its Wake

2012/01/19: Critical Macro-Technical Decision Looming for the S&P 500 …and the Rest in Its Wake

© 2012 ROHR International, Inc. All International rights reserved.

There is a very interesting macro-technical context to markets right now. As is the case in so many of these major psychological decisions, the S&P 500 is approaching a key technical resistance area that is also a major previous psychological decision threshold. That would be into the March S&P 500 future 1,310 area. There are quite a few reasons that is an important technical resistance.

Yet, the important fundamental/psychological aspects make this a very clear macro-technical crossroads for all the equities… and in that context the other asset classes as well. In the first instance, there is the fact that US is now leading the other, more challenged, equity markets higher. That is reasonable in light of improved US data pointing toward potentially better times in the key ‘conspicuous consumption’ economy.

So in some goodly measure there is the question over whether the improved data from the end of last year driving the continued equities rally is indeed going to continue in early 2012. There is also another important intermarket indication we have reviewed since the beginning of the year: the somewhat perverse “it’s all going up together” psychology. That was apparent in the strength of Gold and Crude Oil, which would not normally accompany the also somewhat atypical sustained overall up trends in the equities, govvies and the US dollar.

As we noted yesterday, that meant these markets were still very fraught, with the potential for a sharp trend reversal in one asset class or another. And after ignoring the serial new highs in the equities for the first two-and-a-half weeks of the year, those chickens finally came home to roost in the more pronounced weakening of the govvies and the US dollar today than anything seen since the first of the year. While still only sagging into or below short-term support so far, that is hardly the point.

The fact that classical countervailing intermarket activity is now apparent between the strength of the equities and weakness of those other two major asset classes is a telling change. This is also what makes the March S&P 500 future decision into the 1,310 area more critical than usual (more on that below.)

In addition to technical considerations, there are certainly plenty of politico-economic influences driving a significant macro-technical decision in the equities, and also other asset classes by extension. With the notable exceptions of last week’s OECD Composite Leading Indicators and today’s surprisingly abysmal Australian Employment data, the economic statistics have been very good.

However, other asset classes had been able to ignore the strength in equities in part because of the still radical risk factors that might percolate to the surface. The European Sovereign Debt Crisis focus is moving onto the Greek debt deal, and any chance for a successful Private Sector Involvement (PSI) is falling apart.

Whatever effect it might or might not have, it is also notable that the 1,310 area in the lead contract S&P 500 future is the same support violated at the end of last July, when the US Congress failed to deliver a meaningful debt reduction deal. It was in part the paltry overt spending cuts and that phony “Super Committee” compromise that left S&P 500 unable to get back above 1,310 back on August 1st. While the resurgence of the European problems were a major negative force back then as well, no doubt the US disarray contributed to the equities overall early August failure.

General Market Observations

On a purely technical level March S&P 500 future 1,310 area combines the nominal down trend off the weekly chart highs with the significant congestion from during the major top formation in the first half of last year. It is also just about as far as any of the bears would want to see the trend rally back into the overall range of that Head & Shoulders Top. Much higher than that might point to a new overall high.

EXTENDED TREND IMPLICATIONS

As for the counterpoint in the govvies, March Gilt future Closed right into key short-term support in the 116.50-.39 area (mid-December high), and March Bund future took a short, sharp spill below key short-term support at 139.30-.20 prior to closing just above 139.00. March T-note future remains resilient, holding right into its 130-16 area near-term support.

While all of those are still short-term levels, in fact they are already being challenged on the March S&P 500 future push into 1,310 is important. It both illustrates the degree of the countervailing intermarket activity now apparent in the wake of the extended equities rally, and sets the stage for a full point further drop to the next meaningful support in each of them if the equities should escape to the upside.

Similarly in the foreign exchange, the US Dollar Index Closed below its near-term support in the .8050-30 area, with the more critical support below the market in the area around the .7950 major channel UP Break from late last year (which was tested on the early year weakness prior to the recent rally.) That is most interesting because it is occurring on the EUR/USD squeeze back above the major 1.2860 January 2011 low that was violated on the weakness in the first week of this year. That said, the far more formidable resistance there as well is still up in the mid-upper 1.3000 area.

Thanks for your interest.

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