Lower Highs: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Industrials (XLI) and SPY

I know people just want to get to month and quarter end but, like last year, and basically all 3 major draw-downs we saw in US Equities from the Q1 tops to Q3 lows (2008, 2010, and 2011), the next few weeks are likely going to be some of the most critical of the year.

Pro-cyclical Sectors (Energy, Basic Materials, and Industrials) are leading to the downside. Their respective highs for the year look very different than Apple or the Financials. Growth Slowing, globally, is not new to us – but it’s definitely looking like consensus has to pay more attention to it now that the VIX has gone from 14 to 17 on a 25 point SP500 drop.

Across my core risk management durations, here are the lines that matter most right now: 

  1. Immediate-term TRADE resistance (was support) = 1404
  2. Immediate-term TRADE support = 1388
  3. Intermediate-term TREND resistance = 1312 

In today’s chart I provide the scarier side of lower long-term highs in context (i.e. where we are within the context of not only the Sovereign Debt Cycle crisis, but the SP500’s all time high). The risk associated with this chart certainly isn’t “cheap.”

What have we learned about market multiples in the last 4 yrs? Cheap gets cheaper when Growth is Slowing.

KM

Keith R. McCullough
Chief Executive Officer

Lower Highs: SP500 Levels, Refreshed - SPX