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

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.

Disclosure: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[TradingHelp...:]

Really useful thanks. I am slightly more positive than you and would say we are close to 50/50 as to next direction. It is not certain, nor even highly likely, that we must see another downturn.

The key issues are monetary easing and its positive impact on speculation and risk appetite versus the ongoing weak unemployment data which is of course a bearish drag.

Jul 05 02:30 PM

[dcb:]

Silly stuff. Attempting to apply rationality on a clearly manipulated market is silly. When the powers stop making stick saves, or goldman wants to let it go down it will. if you look at the money flow data the market should have corrected at least once significantly by now. we are now in the process of the "second"corredtion by money flow data. this time it appears the market is being allowed to move down as money flows out. this did not really happen last time. verdict is not in, but I would say the big boys have decided they have had enough profits, their shorts are in, or hedges, and based on the way the the S&P has had a completely different buying pattern for over a week, it will be going down.

Before we had morning sell offs, with buying later. now the "funds: are gunning up in the morning and selling in the afternoon. this was exactly the pattern on the long run down from Jan to march, and the opposite on the way up march to end of june.

Jul 05 09:06 PM

[Steve Soden:]

Please, Market forces are rigged by Goldman Sachs and others.
Constant changing rules are distructive to markets.
Cash out now and count your blessings.
Things will be getting ugly shortly.
Dow 5000?

Jul 06 03:18 AM

[je:]

Mr Hill,
Good morning. You know how outspoken I amand I agree with DCB on market manipulation and for good reason besides the greed aspect of it.
For one we nwwd to push the dollar up a little bit at the moment so yes they will let the market correct a bit -maybe as low as 7600 but then they need to protect those pension plans as well as get a little cash for the boyz so the market will rally 10,000? 11,400 but then the party is over and we will likely visit the lower trend line that will take us to 3500 in the next couple of years.
Of course the market is manipulated - how obvious can it be. And they are not stopping here, it is merely a pause.

Jul 06 09:16 AM

[John Lounsbury:]

JC - - -

Very similar conclusions to those I published in a Real Money article on June 11. (Sorry I can't share more, the article was for paid subscribers only and is restricted from further distribution until August 10.)

I have to respectfully disagree with dcb, Steve Soden and je. I am not giving up fundamental or technical analysis because of possible attempts at market manipulation. If actual manipulation occurs, the counteractions to such manipulation are often good trading opportunities for those making the effort to keep on analyzing markets and individual securities.

Jul 06 11:40 AM