Thursday, February 11, 2010

S&P 500: Bull, Bear, or Neutral Market?

I've been reviewing moving averages, including comibinations thereof,  for the S&P 500, SPX, to determine if we are in a bull/buy/long or bear/sell/short market.  The SPX has ground to a halt and we are now in a major pullback in the rally from the March 9, 2009 bottom.  In previous posts, I reviewed the well known 20, 50, 100, & 200 day simple moving averages, the 10 month exponential moving average, and the combination 25 day & 50 day simple moving averages.

SPX Status: The slowest averages, long term, signal the SPX is still in a bull market, albeit deteriorating.  The moderate speed averages, intermediate term, signal the SPX is now neutral (neither bull nor bear market, but trending bearish).  The fastest averages, short term, signal the SPX is in bearish mode but the decline in SPX price has leveled off.  I review the charts for these signals below, but first...

Of course the Big Question is what the trend is, what happens next?  Personally, I think we are back to the US Dollar, which is contingent on the Euro, which is contingent on the Eurozone Fiscal Crisis involving the PIIGS (Portugal, Ireland, Italy, Greece, Spain) aka Club Med, as well as the marginal Eastern European countries.  What does the US Dollar Index chart say, since it is inversely correlated to the SPX?

The US Dollar Index on the above daily chart has the 25, 50, 100, & 200 day simple moving averages plus a histogram of the difference between the 25d sma & 50d sma as an intermediate term signal.  This has been a bull market with the 25d breaking above the 50d, 100d, & 200d sma's.  The 25d / 50d sma comparison is also bullish, though leveling off.

The US Dollar Index is at resistance from June & July 2009.  A breakout upside and the SPX tanks.  If the US Dollar churns at resistance, the SPX probably will churn as well at the current lower level.  But much is contingent on the Euro and its effect on the US Dollar.

The Euro/US Dollar monthly chart above is with same averages as the preceding US Dollar chart.  The Eur/USD bounced off support from May 2009.  If the Euro breaks down through support, the SPX goes with it as the US Dollar strengthens as a result of a worsening Eurozone Fiscal Crisis.

So, maybe the SPX depends on Germany's response to Greece?  That is, whether Germany bails out Greece?  lol  Of course, that is simplistic, but the stronger fiscal EU nations response to the weaker will determine the outcome of this fiscal crisis and related currency pricing.  My interpretation and opinion on the who, what, when, where, why, and how much are for another day...

Back to SPX chart review:

The Traditional Averages using the above daily chart:: 20 day, 50 day, 100 day, & 200 day simple moving averages.  The SPX price has broken down through the 20d, 50d, & 100d - not a positive signal.  The 20d has broken down through the 50d and is seemingly heading downward toward the 100d.  Short term is obviously bearish, intermediate term is iffy (neutral?), and 200d sma long term has yet to be tested.  The sma's are:
SPX = 1068.13
20d = 1099.30
50d = 1109.73
100d = 1091.82
200d = 1021.97

The most bothersome is the SPX breakdown through the 100d sma.  The SPX broke upside through the 100d on April 21, 2009 and never looked back until January 28, 2010.  The 100d trend even remained intact during the pullback in July 2009.

The Golden Cross, the 50d / 200d sma comparison, occurring in mid July 2009 remains intact, as does the 100d / 200d sma comparison (Platinum?) Cross.  This Cross occurred later in July 2009 and looks solid at this point.

Intermediate Term Averages using the above daily chart: The 25 day / 50 day simple moving average comparison is neutral, neither bullish or bearish.  The 25d sma = 1107.72 & 50d sma = 1109.73, a -2.01 immaterial variance.  So, this intermediate term indicator is leaning and slightly trending bearish but not convincingly.

Long Term Average using the above monthly chart: The 10 month exponential moving average is indicating a bull market still exists.  The SPX February low of 1044.50 on Friday, February 5 has tested it, but there was a bounce.  The 10m ema =1043.24, about a 25 point variance.  This indicator clearly signalled a bull market in July 2009.

***Bonus Signal***
Ultra Long Term Indicator using the above monthly chart:  The 13 month exponential moving average compared to the 34 month exponential moving average (I kid you not!).  This is the darling of the bears, because it shows the SPX continuing in a secular bear market since September 2008 until the present.  The rally since the March 9, 2009 low is a cyclical bull market rally, presumably doomed for failure?.

A very, very slow signal.  Since the latter part of 1982 (27+ years ago!) this indicator has only changed status 3 times!  The poor performance of the SPX this month and last month has slowed the rate of increase of the 13m ema, making the transition signal to a secular bull market more difficult.

By the way, for the sake of symmetry and balance, I looked at the 12m ema compared to the 36m ema.  This indicator doesn't generate a sell signal as fast during the 2001 and 2008 price declines, hence an increase in losses on a long position.


  1. Your background is very interesting & respectable. i feel i am on a similar path... trading is my core but i feel as if i am a still searching for my "true" calling..

  2. Good Luck! I tend to get bored after X amount of time and want to do something else - there's good and bad to that. However, numbers, math, quantitative analysis, & information seem to be involved somehow, that's the one common thread or denominator. :)


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