S&P 500’s Irrelevance as a Performance Benchmark and Its Technical Market Condition

Typically, when one evaluates stock market performance, historical prices are used as a reference point for growth analysis. For example, when evaluating the S&P 500,  one would normally look to the April-2007 high @ $1576.09 or the March-2000 high @ $1552.87.

If and when the S&P 500 surpasses either of these above mentioned price levels, then the natural order would dictate a cacophonous parade celebration by investment media pundits and other well-intentioned finance professionals. Unfortunately, during all the hoopla, many investors will fail to realize one important fact: i.e. ‘this time it really is different’.

As you are about to see, gentle readers, the U.S. economy has never actually recovered from the “tech-wreck” market crash of 2000. Instead, it has survived in an asset bubble environment created by Federal Reserve witchdoctor’s destructive monetary policies. In the post-2000 era, the rules of the game have changed and $1 does not necessarily equal $1 (even when adjusted for inflation).

Below is a technical analysis chart study of the S&p 500 and it clearly demonstrates how gold has consistently outperformed it as a U.S. dollar denominated asset class over the last decade. On a more intermediate term basis, the S&P 500 is running into some headwind resistance at its 61.8% retracement level.


sp-500-chart-analysis as of 11-11-2010; click to enlarge

If you grasp the significance of this chart, you should feel a little disturbed. Now does this mean one should abandon all stocks and turn into a gold bug? Absolutely not! There are plenty of stocks which have outperformed both gold and the S&P 500.

If anything, this chart should re-emphasize the increasing irrelevance of the S&P 500 as a benchmark performance index and the necessity for strategic allocation of capital towards industry groups and individual stocks (which is a service that Hillbent provides).

From a technical aspect, the S&P 500 remains in an uptrend, but it is vulnerable to a correction if it fails to break above its current resistance levels. Regardless of this, as long as the trend for the ‘S&P 500 vs. gold’ remains down, one should continually monitor its relative performance value to gold and stay Hillbent for the Market Direction…

Originally published at hillbent.com and reproduced here with permission.