October 13, 2009
Usually we here at BigTrends are focused on shorter-term charts, such as 60 minute and Daily … all in an effort to gain an edge over the markets through the use of indicators and the leverage of options. However, it can be important to see the “big picture” from long-term charts. Stepping back to “see the forest” can often help in your long-term investing and asset allocation.
With that in mind, take a look at the S&P 500 Index (SPX) (SPY) Monthly Chart below. This chart covers about 15 years of data. You can see the large swings and clear Bull & Bear markets we have had over this time frame, all of which lasted multiple years. Depending on your technical viewpoint, it also forms famous patterns such as Double Top, ‘M’ Shape, or even a “Reverse Head and Shoulders”.
The yellow trendline overlaid on the chart is the 20 Month Exponential Moving Average of the SPX. You can see that this simple tool has been extremely good at showing the big picture underlyling market trend. There have been 4 major market stages in this time period, and the 20 Month Exp MA was an accurate guideline of each trend. Following this simple trendline as to when to be Long (and Short) the market would have destroyed virtually any “Buy and Hold” or Index Fund performance over the years.
There have been a few false 1 month closes above or below this line, but any 2 monthly consecutive closes provided an indication of a long-term trend switch. This month, October, would mark the second consecutive monthly close above this moving average. It is currently around 1056.44 — it barely closed above this trendline in September, and currently we are about 1.7% above this barometer.
SPX Monthly Chart
Bottom Line: Would a 2nd monthly close above the 20 Month Exponential Moving Average on the SPX give an “all-clear” Buy signal for a multi-year bull market? I certainly wouldn’t go that far … but the power of this long-term trend cannot be denied. There are fundamental factors and other technical indicators to consider … for instance, I have written previously that a perfect 50% Fibonacci Retracement from the 2007 Weekly highs to 2009 Weekly lows would come in about 1121on the SPX. So I will be certainly be watching closely when/if we approach that level as potential resistance. But those of you who have been sitting on the sidelines in cash, money markets, T-Bills, and the like would be wise to consider the opportunity cost of missing a potential multi-year bull market.
Moby Waller
BigTrends.com
1-800-244-8736
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