Bloomberg News

S&P 500 May Extend Loss to 12%, Piper Says: Technical Analysis

April 17, 2012

The Standard & Poor’s 500 Index (SPX) may have hit its 2012 peak and started a drop of as much as 12 percent, Piper Jaffray Cos. (PJC:US) said, citing trend lines and a decline in stocks setting new highs.

The S&P 500 has lost 3.5 percent since reaching an almost four-year high on April 2, sinking below its average during the past 50 days and breaking an uptrend line that extends from lows in October and December. Indicators that the Minneapolis-based firm uses to track the number of groups making new highs and above a 200-day moving average sent sell signals for the first time in a year.

Craig W. Johnson, a technical market strategist with Piper Jaffray, said he expects the S&P 500 to approach 1,250 to 1,275, near its 200-day average. That would erase half of the index’s 320-point gain from its October low through early April. The index reached its 2012 high of 1,419.04 on April 2 and closed at 1,369.57 yesterday.

“The overall internals and breadth are deteriorating,” Johnson said in a telephone interview yesterday. “The highs for the year have been made in.” He expects the S&P 500 to end the year at 1,350.

Equity gains stalled this month after the S&P 500 jumped 12 percent in the biggest first-quarter rally since 1998. The benchmark index had its first back-to-back weekly decline since November last week as U.S. jobs data missed economists’ forecasts and concern about Europe’s debt crisis and slowing growth in China intensified.

Industry Groups

Piper Jaffray divides stocks into 500 industry groups and tracks the number of those making 26-week highs and how many of the groups are above or below their rising or falling 200-day moving average. A sell signal is triggered on the new-highs indicator when its 10-week average drops 15 percent. The measure of groups above their 40-week average is considered bearish when the current weekly reading falls below its 10-week average for two straight weeks and contracts at least 2.5 percent.

The new-highs indictor flagged sell in March 2011, followed by a bearish signal in the 40-week average measure the next month, according to Johnson. The S&P 500 reached the year’s high on April 29 before slumping 19 percent through Oct. 3, the biggest retreat since the bull market began in 2009.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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Companies Mentioned

  • PJC
    (Piper Jaffray Cos)
    • $40.3 USD
    • -0.17
    • -0.42%
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