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Monday, February 8, 2010

Broad View of the S&P 500

With the world equity markets in a pullback, even a correction, I want to look at the S&P 500, SPX, from a detached, broad, intermediate view.  I say detached, as I do not currently have any trading positions.  It is also a simple view - I'm just going to look at the 20d, 50d, 100d, & 200d simple moving averages.  Let's review the SPX daily chart first:


This intermediate view shows our quandary and mixed signals as of the Friday, February 5 close.  The SPX has broken down through the 20d, 50d, & 100d simple moving averages but is still above the 200d sma.  In a simple, short & intermediate trading scheme, these are sell/short signals.  For a longer term trade, the 200d sma is still in a buy/long signal.

The 200d sma has been in a buy/long signal (and still is) since mid-July 2009.  The 100d sma was in a buy/long signal from late April 2009 to late January 2010.  The 50d sma was in its last buy/long signal from
late November 2009 to late January 2010.  The 20d sma, the fastest signal reviewed, flipped from buy/long to sell/short in late January.

I must note that Investor's Business Daily, on Friday, January 24, did in fact change their market outlook to "Market in Correction", which was about the time SPX was breaking down through the 20d, 50d, & 100d sma's.  I don't follow IBD that closely, but was surprised by the outlook change, so I tweeted this and began watching the SPX a little more closely.  www.Twitter.com/MatrixMarkets & www.Twitter.com/OspreyFlyer.

I say this because I'm excluding the predictions of bears & permadoom bears as we all knew eventually the market would pullback and/or correct to some extent, so these doomsayers would have their moment of "I told you so", even though they have been wrong since the March 9 bottom, lol.

Now let's back out further and look at the SPX monthly chart:


This chart only has the 10 month exponential moving average included.  The 10m ema is the best long term signal I have found and has been mentioned periodically on websites and blogs, which is how I found it.  I have played around with various sma's, ema's, etc. and this signal is not too fast and not too slow to capture overall market moves.

The 10m ema signalled sell/short in late November 2007 and stayed that way until late June 2009.  A buy/long signal was then generated which is still intact.  Therefore, according to this signal, the SPX is still in a bull market.

Conclusion: Daily chart shows short term 20d, 50d, & 100d sma's as sell/short and 200d sma as long/buy. hence the confusion right now in equities.  The montly chart shows the 10m ema continuing as long/buy and a bull market continuing.

Foreign Variable: The sovereign debt crisis in Europe has resulted in the Euro breaking down, which has strengthened the US Dollar, which has weakened US equities.  If and when the Euro stabilzes, this should stabilize US equities.

Domestic Variable 1: For all the rants, including mine, about the USA unsustainable fiscal deficits and ever increasing sovereign debt, these issues, and resulting crises, are still out in the future.  One reason is because other countries are more messed up than the USA, lol.  Hence, the USA is still a safe haven and the US Dollar is still a reserve currency in which commodities, including oil, are traded.  So, the US Dollar is not doomed in the short & intermediate future (5 years?).  It's not the USA's time.  That's another blog post and discussion, sheesh.

Domestic Variable 2: The bottom appears to be in for the USA economy and the Great Recession.  The recovery may be weak and perhaps somewhat jobless, but the economy is functioning albeit at a much lower level than before.  The credit bubble burst and banks aren't going to expand the economy by loosening loan underwriting standards again.  Consumer spending as a percentage of GDP has seen its glory days pass by.  We all knew the USA could not sustain a predominately consumer economy, and someday must be a net producer & exporter nation again to be viable.  I do not know if this will ever happen...

5 comments:

  1. Remember the Golden Cross? The market is still significantly above it. However, should it cross back down, then I think it may be destructive. Too many variables and conflicted opinions.

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  2. Glad to see you are posting. We seem to have a similar approach. Look forward to reading more in the future.

    CC

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  3. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

    Lucy

    http://forextradin-g.net

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  4. Yes, good point fortune8, the next level of analysis in utilizing moving averages would be the "crosses": 20d/50d, 50d/100d, 50d/200d "golden", 100d/200d.

    The 20/50 has just now broke down, a "dead cross", lol. The 50/100 occurred in mid-May 2009 and is still intact, but tenuous.

    The 50/200, the golden cross, occurred in late June 2009 and is still intact. Note however after the golden cross occurred, you had to also have remarkable faith, hehe, as the market pulled back.

    The 100/200 cross occurred in last half of July 2009 during the big rally. This cross still looks good.

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  5. Thanks C&C, I enjoy your blog and your overall reviews of various price indicators. Then there's fortune8's blog, which is, hmmm, unique, lol.

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