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Why Citi Is Worried About The 1,700 Level On The S&P

Tyler Durden's picture




 

Despite the short-term memory-losing recency-biased perspective that a 2-day rally in stocks has seemingly set in investors' minds, Citi's FX Technicals group remains concerned that the S&P 500 is stretched by historical standards. At this point, they add, the S&P is more stretched than in 2007 and a bit less stretched than 2000 with the line in the sand around 1,700.

 

Via Citi FX Technicals,

The S&P 500 is stretched by historical standards:

– At the peak on 15 Jan 2014 the S&P was 12% above the 55 week moving average which itself was 20% above the 200 week moving average

 

– At the peak in 2007 the S&P was 8.5% above the 55 week moving average which itself was 14.5% above the 200 week moving average

 

– At the peak in 2000 the S&P was 14% above the 55 week moving average which itself was 29.5% above the 200 week moving average

So at this point the S&P is more stretched than in 2007 and a bit less stretched than 2000. In both those instances you would have expected (and in fact got) a correction down to the 200 week moving average once support at the 55 week moving average was broken.

However, in both those instances we ended up going much further than the 200 week because of the knock on effects of another asset in the US (In 2000 it was the NASDAQ which saw an 80%+ drop and in 2007 it was the housing market which dominoed into a financial crisis).

Another dynamic at play here is the similarity between 1998-2000 and 2011-present:

– In 1998 the S&P saw a 22% high to low correction on the back of Russia’s default which was followed by a 68% into the 2000 high

 

– In 2011 the S&P saw a 22% high to low correction on the back of the European crisis/Greek defaults which was followed by a 72% rally into the high so far from January

At this point, though, we certainly do not expect the type of correction seen in 2000 but the parallel certainly speaks to just how stretched the move over the last few years in the S&P has been, especially when comparing the backdrop wherein the late 1990s saw low unemployment and high GDP growth compared to the more recent anemic recovery (and the potential beginning of the end of easy money by the Fed).

For now we have not seen the break of any significant levels which would suggest much lower levels are likely in the near-term; however, they are certainly on the horizon:

– Initially watch supports around 1672-1697, the converging 55 week moving average and 12 month moving average (see below for more).

 

– A break below there, should we see it, would open the way towards the 200 week moving average at 1387, 25% off of the highs

The 12 month moving average has been a significant level on a closing basis as can be seen by the rare breaks below (marked by black circles):

August 1998: S&P closes below the 12 month moving average for the first time in 43 months and we saw a 22% high to low correction

 

October 2000: S&P closes below the 12 month moving average for the first time in 24 months as the S&P begins a 50% high to low correction. After regaining the 12 month moving average in April 2003, the S&P stays above it until

 

December 2007: S&P closes below the 12 month moving average as the S&P begins another 50%+ correction

 

June 2010: S&P closes below the 12 month moving average and sees a high to low move of 17%

 

August 2011: S&P closes below the 12 month moving average while posted a high to low decline of 22%

If we were to see a monthly close below the level, it would be in our view a very bearish break and suggests that we are in the process of a high to low double digit percentage correction with the obvious target being the 200 week moving average (if the 55 week moving average also gives way)

 

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Fri, 02/07/2014 - 22:02 | 4414131 SafelyGraze
SafelyGraze's picture

but who's worried about silver closing at 20

http://www.kitco.com/charts/livesilver.html

that's 20.000

with three zeros

it just turned out that way

hugs,
missus danny masters 

Fri, 02/07/2014 - 22:14 | 4414155 PersonalRespons...
PersonalResponsibility's picture

Hey, if you're going to do something, do it right.

Fri, 02/07/2014 - 22:13 | 4414158 Newsboy
Newsboy's picture

Overdue for the biggest reset ever, but none of us who seek to know the day or hour will know, because it is a decision made in secret.

Sat, 02/08/2014 - 09:58 | 4414779 BandGap
BandGap's picture

Looking at the charts above the corrections don't jive. It looks like the first correction was 50% and the second (in 2007-08) even bigger. Am I missing something or is it still to early?

Sat, 02/08/2014 - 08:44 | 4414733 Mister Kitty
Mister Kitty's picture

I remember when gold was close to 50 and gold was pushing 2,000.  What happened?  

Sat, 02/08/2014 - 09:55 | 4414777 bobert
bobert's picture

Kitty:

I think you meant to type silver was near $50.00 per oz.

The answer to your question lies in the vast manipulated derivitives market.

There is nothing wrong with stacking systematically over time.

Try it.

Fri, 02/07/2014 - 22:04 | 4414134 q99x2
q99x2's picture

Shut Citi down. Don't let them have a media outlet.

Fri, 02/07/2014 - 22:40 | 4414213 NoDebt
NoDebt's picture

Sandy Weil built Citi into the Frankenstein it is today.  Last year he came out and shocked everyone by saying "break it up."  He hasn't been heard from since.

Nothing is going to stop this.  It's juggernaut of epic proportions.  It's plugged into EVERYTHING, as are all the big banks.  

TBTF has become a guarantee of endless support.  It was implicit before 2008.  Now it's explicit.  They will NEVER be allowed to fail.  They are, for all intents and purposes, part of the government now.  You can't tell where one ends and the other begins.

Sat, 02/08/2014 - 00:27 | 4414441 DeadFred
DeadFred's picture

LOL they act as if control is in their hands. When it fails, and it will fail, it will fail big-time. TA articles like this can help figure out the mechanics but you really need to know when The Event is going to happen. Citi is not well enough connected to have that knowledge.

Sun, 02/09/2014 - 11:28 | 4417079 El Hosel
El Hosel's picture

Sandy better avoid nail guns and skyscrapers.

Fri, 02/07/2014 - 22:16 | 4414168 Johnny Cocknballs
Johnny Cocknballs's picture

a lot more money swishing around now than in the past...treasuries not nearly as sexy - or safe.

You'll see some stretching yet, by gum.  I promise.

 

Put another way, the Fed has greatly increased the capacity in the System for rampant fuckery.  You can not forward attribute past {and non-causal} metrics.  That's like thinking you'd still want to fuck the girl you took to the prom.  If nothing had changed, sure, but if you learn she's had 4 kids and a couple divorces, I think you'll be looking for tighter berjayjay.

 

I love Scotch... Scotchy Scotch Scotch.

Fri, 02/07/2014 - 22:23 | 4414178 gwar5
gwar5's picture

Fuck Prince Alaweed and Citi.

Fri, 02/07/2014 - 22:44 | 4414220 Frank -THE COIN -
Frank -THE COIN -'s picture

Fantastic information. The Fundamentals and the Technicals have lined up.

Fri, 02/07/2014 - 23:08 | 4414281 Rising Sun
Rising Sun's picture

The banksters can't unload their inventory enough to allow these markets to tank.  So expect more push higher.

 

The great news is that the public isn't being sucked in.  That's a shame, because without the public being the bag holders, the banks are the bagholders.

 

Yep - banks are bagholders - a real shame.

 

Fri, 02/07/2014 - 23:07 | 4414290 disabledvet
disabledvet's picture

i really don't think there is much historical precedent given the nature of the (total lack of) recovery...the fact that interest rates were determined to be at the zero bound as "best" and that people have assumed in Taper that the Fed has hung a "mission accomplished" sign on the road to creating inflation and spread product.

Historically speaking none of what has going on makes any sense to me...AT ALL.

The only thing i am certain of is a: this is a bull market and b: those who don't understand a have been annihilated.

Credit is dirt cheap...liquidity is plentiful...production has surged...so has efficiency. If this doesn't scream "all hail Adam Smith" (and his views on specialization of labor) i don't know what does.

But hey...i'm just a spectator here. (mostly)
At least I think i'm just a spectator here...
http://www.youtube.com/watch?v=YimR77fq7Yw
easily the greatest live act in music history.
i recommend watching it in its entirety.
of course just how great Freddie Mercury was really wasn't known to Americans until after he died...although it does seem pretty obvious simply by looking at the crowd's reaction. Not that there was ten thousand of 'em or anything. (How many million again? With MEANING you say? And after playing in South Africa? Hmm. Go figure.)

Fri, 02/07/2014 - 23:20 | 4414316 Vint Slugs
Vint Slugs's picture

It's not about 1700 and definitely not about Citi. 

Analogs by Eidetic Research (http://eideticresearch.com/uploads/2/8/3/4/2834543/djia_-_sp_analog_december_12_2013.pdf, Tom DeMark (popularized by Tom McClellan - sorry don't have the link) - and Tedbits (http://www.zerohedge.com/contributed/2014-02-05/2014-outlook-can-you-hear-popping-sounds) have all sounded the alert to what's coming.

Tyler, we really don't need the sponsored contributions of a sell-side institutions here at ZH to get market insight.

Sat, 02/08/2014 - 01:51 | 4414547 ReactionToClose...
ReactionToClosedMinds's picture

thank you - good stuff as had not seen previously

Fri, 02/07/2014 - 23:20 | 4414320 Clowns on Acid
Clowns on Acid's picture

1700 is the line in the quicksand.

Fri, 02/07/2014 - 23:29 | 4414335 syntaxterror
syntaxterror's picture

ZIRP to infinity. What else are you going to invest in? Bonds? Virtual currencies? Classic cars? 

With ZIRP you can margin up to the max with free money and buy stawks, stawks, and more stawks.

Fri, 02/07/2014 - 23:56 | 4414378 Johnny Cocknballs
Johnny Cocknballs's picture

foreclosed homes - rent them to the former owners.  already happening will happen more.

real estate and PMs and oil/gas, oh yeah, arms manufacturers.  The four horsemen of the bankopalyspe

 

It's all about changing fiat for real assets.  They can push it further, longer. 

 

And they'll get that Iran war going, even if it takes a while. 

Sat, 02/08/2014 - 00:37 | 4414459 Galts Disciple
Galts Disciple's picture

1700, 600, 2200, like Hillary Clinton said what the hell does it matter? It's all rigged and unless you're on the inside, and very few are, you're on the outside trying to get lucky. I know this though, I don't want to be in their way when they finally pull the plug on this massive frauduelent debacle.  

Sat, 02/08/2014 - 00:50 | 4414477 TheRideNeverEnds
TheRideNeverEnds's picture

Citi's FX Technicals group remains concerned that the S&P 500 is stretched by historical standards.

 

Someone should inform them of the fact that this time is different.

 

You know; what with the new paradigm, permanant high plateau, and all that. 

Sat, 02/08/2014 - 04:28 | 4414634 HardlyZero
HardlyZero's picture

And Yeller' Balloon with a Tapir inside...rising higher or losing loft ?    If Tapir big, balloon will fall.  FED phys-ics.   Get ready.

Sat, 02/08/2014 - 03:19 | 4414594 lasvegaspersona
lasvegaspersona's picture

if the S&P price line asymptotes up a line on the right to a gajillion we get hyperinflation, if it falls below the 200 day avg we get fed reaction and THEN hyperinflation....so...what was the question?

Sat, 02/08/2014 - 04:30 | 4414632 HardlyZero
HardlyZero's picture

Yellin' Taper Tuesday.   Friday was a flash in the pan.   Lets see Tuesday 3PM how S&P.

Sat, 02/08/2014 - 05:06 | 4414643 Haager
Haager's picture

Damn, it's Citi and not BofA, otherwise I'd know for sure next stop would be below 1700.

Now, we probably see just another bounce to kill anyone shorting this mess before downturn takes over again.

Sat, 02/08/2014 - 06:43 | 4414668 GK
GK's picture

The SPX rally accelerated after '11, and is currently following the same rate of ascend as the '98-'00 rally.

The DJIA advance since 2009 matches the whole '87-'00 rally almost to the point.

 

Sat, 02/08/2014 - 09:26 | 4414755 buzzsaw99
buzzsaw99's picture

central bankers and the big banks want two things, bubbly stock prices and high trading volumes. that's it. any sky-is-falling prognostications, any selloff, is a head fake. if they wanted a large selloff they would not have zirp 4evah. even when they decide they want a stock market crash it won't be because of the free market because there is no market, there is only old yeller. If you're not inside, you're outside, okay? [/Gordon Gekko]

Sat, 02/08/2014 - 09:47 | 4414772 El Hosel
El Hosel's picture

I'll take 1104 for $10,000, Alex.

Sat, 02/08/2014 - 10:00 | 4414782 negative rates
negative rates's picture

Okay, What sign is to be displayed when trucks are transporting large amounts of toxic waste? 

Sat, 02/08/2014 - 10:20 | 4414795 RedHarley
RedHarley's picture

$

Sat, 02/08/2014 - 10:27 | 4414807 Panem et Circus
Panem et Circus's picture

What is "CAUTION: Contains Goldman Sachs Buy/Sell Reccomendations. Contents may be hazardous to your health." Alex.

Sat, 02/08/2014 - 10:37 | 4414823 Joenobody12
Joenobody12's picture

OK the sky is falling. Where to hide ? 

Sat, 02/08/2014 - 10:45 | 4414837 Sufiy
Sufiy's picture


Arthur Cutten: NYSE Margin Debt - Take It to the Limit, One More Time 

 Arthur reports on the latest development with the leverage in the system, as we have noted before - the NYSE margin debt tops are preceding the markets tops.Talking Heads on the Bubble Vision are still talking about the minor correction and that underlying economy is strong. We will see very soon how long Taper can go in this environment.

 

http://sufiy.blogspot.co.uk/2014/02/arthur-cutten-nyse-margin-debt-take-...

Sat, 02/08/2014 - 11:14 | 4414874 Breezy47
Breezy47's picture

I didn't read all of the posts but over the past two weeks I read 1775 was the number, then 1750, now 1700 is the "red line"? Give me a fucking break! Just crash and get it over with! I'll pay attention when the S&P hits 1200 given all this hype recently.

Sat, 02/08/2014 - 14:10 | 4415236 buzzsaw99
buzzsaw99's picture

That's kind of how I see it. I will sell some at S&P 1999 or buy some at S&P 1199. Aside from that this market is dead to me.

Sat, 02/08/2014 - 13:01 | 4415111 Market Rage
Market Rage's picture

It's premature to say January 15th was the peak.  NDX looks like it's going to retest the highs.  We'll have to see what happens to SPX at the 1820 area, but this disgusting, low volume almost guarantees it gets there. 

Sat, 02/08/2014 - 15:04 | 4415331 Music101
Music101's picture

Margin Debt!!!! We're headed for trouble! It's a WORLD OF DEBT!!! See Video below -- Funny too:

http://www.youtube.com/watch?v=99xsqxzJnXs

Do NOT follow this link or you will be banned from the site!