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Chart: S&P 500 – Back to 1997?

November 19, 2008 1:45 am

Today we hit an interesting level for the S&P 500. Intraday, we moved down to decade old support levels and then as if on queue, buyers (aka the Plunge Protection Team) came in to move the markets back up, turning a significant loss into a reasonable gain.

While that appeared to be good news, there was much more that needs to be looked into as there are neon signs flashing warning. By all measures,  the next support level for the S&P 500 is very important.

Click on the chart below and enlarge to see a monthly history of the S&P going back to 1997. We have now taken back most of the massive gains that were booked during the 1998-2000 bull market…for the second time ! Surely investors are going to be very nervous and arguably looking for any excuse to bail.

The next level of support appears to be 799 for the S&P 500 which is the double bottom of 1997 and 2003. This is reason enough on its own to keep a neutral/short portfolio allocation. Add to that a confused Congress, a bailout happy Treasury Secretary and a lame duck President and it makes for a lethal recipe. Don’t even bring up fundamentals as this will tip us right over the cliff….

The high level of the VIX (60+) also provides additional data to believe that another retest (or more) is possible as the range of returns could easily move the index through lower support.

How long will buyers keep on believing that a bounce from the lows is automatic?

Thoughts and comments please…..

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Written by Andrew Horowitz · Category(s) Markets, Strategy, Technology    |  Tags: •   

5 Responses to “Chart: S&P 500 – Back to 1997?”

  1. Jonathan Lawson on November 19th, 2008 2:46 am

    This wide trading range (SPY 84-100) we have been in for 6 weeks has allowed the market to consolidate and the 50 day MA has nearly caught up to the current price levels.

    Many companies are not giving 2009 guidance. They simply don’t know how bad it can be. And fundamentals seem to be deteriorating, rather than showing signs of flattening. Employment levels, concerns of deflation, lack of a bottom in housing prices, etc.

    There seems to be some impatience among investors I know (even me), who want this market to go up. The trend remains lower, there seems to be no reason to bet against this trend for more than a trade. Selling the rallies has worked, I don’t see a reason for that strategy to stop working in the foreseeable future.

  2. Mark on November 19th, 2008 11:35 am

    Could the Plunge Protection Team really exist in the sense that the Working Group is being used to prop up the markets during downturns? If not, what other (less conspiracy) theories are there for why the market reacted in such a unique way yesterday (11/18/2008) and last Thursday (11/13/2008)?

    Mark

  3. VPro on November 22nd, 2008 7:29 pm

    Mark,
    #1 – we were well do for a bounce. many fib numbers were hit or broken through.

    #2 – Just knowing Paulson would not be the Treasury Secretary likely gave things a lift.

  4. Andrew Horowitz on November 23rd, 2008 1:28 am

    VPro…

    Technicals are not to be trusted here. The bounce was due… perhaps… BUT, the option expiration is a much more plausible excuse. The fact was that there was not news that was even remotely positive. Treasury Secty pushing markets. BAH.. I do not think so…. Convenient excuse by the media who know nothing except what they are fed.

    A

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