Chart of the Day: S&P support way down at 900-950

Earlier today, Andy Lees of UBS posted the W-bottom chart that Global Macro Monitor caught a few weeks ago. The global Macro guys were posting on August 30th, saying:

We don’t know and not willing to make a huge bet either way. The next negative headline and tape bomb will be the true test.

The negative headlines are here and the tape bomb shows a failure to confirm, which has Andy Lees thinking about where the next stop is.

He writes:

what happens over the next quarter and the quarter after that until we either reach the sustainable level of output with rates here or the Fed bridges the gap with QE4? A simple chart of the S&P suggests the next stop is around 900 – 950 whilst the second long term log chart on the Nasdaq puts the move into perspective.

S&P 500 "W" Bottom
S&P 500 "W" Bottom
Nasdaq below trend line
Nasdaq falters and is now below trend line

Also see from last month: Zulauf: "I expect the market to go below the latest lows in September." Zulauf has done a good job on calling the macro picture in this environment. he seems to think that:

Once the S&P 500 falls to 1000 or below in the first half of 2012, the Fed will come in and try to support the system. Eventually the ECB [European Central Bank] will try to do the same thing in Europe. The damage in Europe will be greater, as Europe’s financial system is even weaker than the U.S.

If the CBs do reach into their arsenal for even more liquidity to maintain support, they’ll need to get out the bazooka because the ammo they are using now isn’t giving people any confidence whatsoever.

  1. Stevie b. says

    Hi Ed – for the first time in 15 years (like the world cares) I intend to be a buyer at these levels and below. If i’m wrong and things really go to hell, some stocks will probably end up being better than cash anyway.

    1. Edward Harrison says

      Stevie, I saw McDonalad’s increased its dividend yesterday. That shows you that some companies are doing ok. But I think we are headed a period where earnings are going to get cut and that’s not bullish for the overall market. Fedex in the US is a good canary in the coalmine.

      1. David Lazarus says

        McDonalds are probably doing well because they are the bottom of the market. Even Walmart did well as consumers downshifted brands and shopping habits. Restaurants in the middle are getting seriously squeezed. As discretionary incomes are squeezed the middle segment retailers and restaurants will be squeezed like never before. In the UK supermarket retailers are noticing a squeeze unlike those from previous recessions. As US government policy is wiping out the middle class it does mean that the long term prospects for businesses that cater to the middle classes will have a tough decade.

  2. David Lazarus says

    900-950 is an okay short to medium term position, but longer out I see 600 or lower. If you concentrate on those with stable and decent dividends then at least you will get something to make up for the large capital losses coming.

    1. Edward Harrison says

      I agree that a double dip means much lower numbers. I would expect us to test the 666 number in real terms

  3. Tyler Durden says

    Interesting, but im not really sure how useful the nasdaq chart is; unless you time frame is years decades.

    1. Edward Harrison says

      I think the Nasdaq chart is good if you are thinking of whether this is a secular bear market since it shows the Nasdaq breaking below trend. It suggests that, looking at the longer-term reversion to the mean will be up

      1. David Lazarus says

        Actually I think the potential for the Nasdaq is more positive than for the S&P. Overall it might still fall and maybe even substantially but there are some very good stocks in there that will mean that it holds up well. Apple being one. It is already larger than Exxon, with medium term falls in oil definitely coming weakening Exxon. Then Apple will be launching the next iPhone in two weeks so that will be a big boost for them, increasing the difference. It might be more down to stock picking over the next few years.

  4. Stevie b. says

    I used to lecture Merrill brokers worldwide on the basics of charting, so I can’t argue about the NASDAQ chart…BUT…the problem is that for once (yes, this time things ARE different – ha ha ha) the fundamentals seem to show that there is not one person left on the planet who is bullish – so I for one intend to (perhaps not quite!) fill that gap.

    Everyone knows things are rubbish and that’s why we are where we are – so the chart could be a bear trap. If not, I’ll continue to be a gentle buyer as long as the background continues to be so lopsided – and don’t mind being a few years too early (again). It’s the balance of opportunity that’s important and right now that balance is on the side of the buyer.

  5. Leverage says

    I still hold my shorts open waiting for a resume in the trend on next week (maybe not Monday, but Tuesday), unless something significant happens, which I don’t think will (and disappointment will make stocks drop).

    My target area is around 900 too, this target is so obvious that if stocks start falling it would happen faster than we think. Below that… I don’t know, I’m betting on sideways trend until govs/CB’s start to do something, which they will eventually. Even writedowns and defaults wouldn’t be bad at that point probably.

    Lower lows than 2009 are not imposssible, as proven by Nikkei experience, and this time is even worse. So, despite dead cat bounces, my short positions will remain open. I think commodities may decouple if equities stay strong and lead the way down eventually, we saw the huge drop in silver (which, btw, I don’t think has found its bottom, which I place probably at the level of mid-2010) and this trend will continue amongst other commodities (oil is next on my list for a huge correction).

    Equities may lag and stop on the path to the bottom, but eventually will fall like a rock.

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