Introduction
For the time being at least, the S&P 500 has established the 1,080 area as an important support technical level. I do not think it will hold too long, but yesterday's behavior has now set up a short-term bogey to keep an eye on.
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Going into yesterday's trading, there was thought that the 1,080 area on the S&P 500 represented an important support level. I don't know how legitimately important it is, but if people think it's important, then it becomes important.
And yesterday's general behavior reinforced the notion. The S&P had a range of 1,078.85 to 1,089.82, closing at 1,084.07, down 2.13 points or 0.20%. The index traded at or a bit below 1,080 on and off during the session, but it seemed to find a decent bid generally around 1,080. Therefore, for the time being, this becomes a key number.
As I opined in yesterday's material, I think the market, despite its heavily short-term oversold condition, has now sustained enough damage over a short enough period of time that any meaningful reflex rally will now require something at least appearing like a washout bottom to get it going. There was nothing like that in evidence yesterday. Therefore, I conclude that the rally commencing off yesterday's lows will not get too far before aborting.
I also suspect that S&P 1,080, although now a "hot" number, isn't really too hot. In other words, I believe it will get taken out on the downside before a potentially more important rally gets underway. And I also think it will get taken out relatively soon.
As of last Friday's close, here is what the DJIA, the NASDAQ Composite and the S&P 500 looked like, vis a vis their respective 200-day moving averages.
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200-DAY MOVING-AVERAGE VIOLATIONS --
VALUES PROJECTED FROM CLOSE ON 07/23/04
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% Decl/Gain From
MA Violation/ 07/23 Close At
Resulting Price Violation Of:
07/23 --------------- ----------------
Measure Close 0% 5% 10% 0% 5% 10%
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DJIA 9962 10240 9728 9216 +2.8 -2.3 -7.5
NAZ Comp. 1849 1986 1887 1787 +7.4 +2.1 -3.4
S&P 500 1086 1109 1054 998 +2.1 -2.9 -8.1
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In my view, the stock market is in genuinely significant trouble, and it could well be trouble for the rest of the year, on balance. As I've opined in past material, the chances are very strong that 2004 highs were made a few to several months ago. And I also maintain my long-standing view that there is a very good chance the market will finish this year in the red -- quite possibly, solidly in the red!
But in the absence of a crash or even a crash-like event, something rare in occurrence, stock prices will not trade down in a straight line. (An exception, of course, would be the market's reaction to a major terrorist event, particularly were it to occur on US soil.) A rally of import will materialize, but I don't think it will do so from around current levels. Using the numbers in the above table as a guide, seeing those bellwether measures, in the current leg, trading to somewhere between minus 5% and minus 10% respective 200-day moving averages as they stood last week, would not surprise me.
And based on some important sentiment measures, there remains an overall complacency about what has been taking place. In turn, creates a climate conducive for further declines.
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THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 04/23/04 THROUGH 07/26/04
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S&P 500
Date CBOE Options -------------------
or Put/Call Ratios Vs. Cum.
Week CBOE -------------------- Prior 4/23/04
Ended VIX* All Equ. Ind. Tot** Close Week = 100
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2004
07/26 17.30 0.81 0.71 1.24 0.87 1084.1 -- 95.05
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07/23 16.50 0.81 0.63 1.75 0.87 1086.2 -1.4% 95.23
07/16 14.34 1.12 0.93 1.92 0.84 1101.4 -1.0% 96.56
07/09 15.78 0.75 0.67 0.98 0.85 1112.8 -1.1% 97.56
07/02 15.08 0.81 0.71 1.27 0.85 1125.4 -0.8% 98.67
06/25 15.19 0.68 0.57 1.24 0.85 1134.4 -0.1% 99.46
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06/23*13.98 0.83 0.57 2.19 0.86 1144.1 -- 100.31
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06/18 14.99 0.80 0.60 1.78 0.86 1135.0 -0.1%
06/11 15.04 1.15 1.01 1.58 0.86 1136.5 +1.2% 99.64
06/04 16.78 1.02 0.83 1.58 0.86 1122.5 +0.2% 98.41
05/28 15.50 1.05 0.70 2.83 0.85 1120.7 +2.5% 98.26
05/21 18.49 1.12 0.81 2.12 0.84 1093.6 -0.2% 95.88
05/14 18.47 0.97 0.82 1.44 0.84 1095.7 -0.3% 96.06
05/07 18.13 1.01 0.79 1.77 0.84 1098.7 -0.8% 96.33
04/30 17.19 1.02 0.95 1.44 0.84 1107.3 -2.9% 97.08
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04/23 14.01 0.70 0.63 1.16 0.85 1140.6 --> = 100.00
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*Recent closing high.
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VIX Highs and Lows (Including Intraday)
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Year High Date Low Date
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2004 22.67 03/22 13.34 07/14
2003 41.16 03/12 14.83 12/15
2002 56.74 07/24 18.87 03/28
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