S&P 500 Quarterly Charts More Reliable as a Leading Economic Indicator

Jul. 5.09 | About: SPDR S&P (SPY)

Looking at the S&P 500’s performance on a quarterly basis and its price pivots is a fairly reliable gauge for the market direction. Each quarterly period allows ample time to process and assess economic data trends, quarterly earnings reports, and investor sentiment towards risks.

In general, quarterly price reversals, such as the positive 2nd quarter performance (see chart below), should not be taken lightly. From a technical analysis perspective, reversals indicate a deceleration in momentum. Fundamentally, they may also signal economic inflection points. Of course, such pivot moves do not always guarantee a successful bullish or bearish reversal as the primary trend dictates market direction.

As we enter the 3rd quarter, I recommend investors ignore the media noise and closely monitor and compare the S&P 500’s price action to the recently completed 2nd quarter of 2009. Based upon my recent technical analysis of equity indexes, the market is vulnerable to a correction. However, if such an event occurs and the index can remain above the mid-range (i.e. 800 to 810 area) of its previous quarter’s trading range (i.e. 666.79 to 956.23), this would be a moral victory for the bulls in that it sets up a potential consoldation pattern and indicates that the market has not completely jettisoned its hopes of a 2010 recovery.


With all the above being said, I want to emphasize that the primary trend for stocks remains downward and bearish. Viewing the market from a quarterly time frame requires more patience, but this longer-term perspective also makes the market a much more reliable leading economic indicator.

If the economic recovery that some anticipate is legitimate, then it should not be a short-term event. Anything less than "sustainable muddle-through anemic growth" (which is the most I expect from any sort of turnaround given the magnitude of this crisis and our nation’s overwhelming indebtedness) is just a smoke and mirrors ruse by Wall Street to fleece investors of their capital.

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