Market Struggle at 50 Day Moving Average, Again

Friday’s market weakness isn’t surprising when you consider that the S&P 500 has had a very difficult time getting above the simple 50 day moving average:

The blue line is the 50 day moving average and the lower line is the distance between the index and the average.

I don’t know if the third uptrend break will be the charm or whether the market will simply waffle around until it can muster a definitive break above the 50 day moving average.

The percentage of S&P 500 stocks which are trading above their 50 day moving average has also risen sharply. But since the market top in October 2007, this indicator has been making lower lows. In October it reached 85%, then in May 2008 only 80% and August 2008 it didn’t even pierce 70%. So I wouldn’t be surprised if it peaked at a lower level again:

What makes this difficult waters to chart is that all of this may not even negate that we have already seen the bottom for the market. As in most bear markets, we may revisit the lows but not break them significantly. Only the 1974 bear market, I think, put in a prominent V bottom. Other bears have died a slow death over months and months. The previous bottoming process, for example, took from July 2002 to March 2003.

I’ll be watching sentiment for clues on just how despondent the average investor is out there. If most have given up any hope, we may yet see an end to this grueling bear.

Comments

[Slick Irons:]

This bear market has ended for now. Expect a 5% correction, followed by a 7% bounce. Then, I foresee an 8% correction. Lastly, I envision a tremendous 34% rally, in short order.

Then...the BEAR re-emerges from his winter's hibernation, to wreak havoc on the world's equity markets.


At least, that's what happened Seventy years ago...



Slick

2008 Dec 19 08:29 AM

[investor88:]

Fair comment ie don't know what the future holds.

2008 Dec 19 09:05 AM

[Carl Spackler:]

Most big corrections, in a multitude of asset classes, tends to follow the same trend. They find their bottom and then they trade within a definite range for 6-12 months before they begin a bull phase. I am amazed at how bullish everyone is. It seems like everyone's mother is calling this the bottom and that the time to get into equities is now. Everyone cannot be right and the market has not put in enough time in a sideways range to support a bull run. I think conditions actually support a retest of the lows of November then hopefully several months of sideways action. To get in now would be foolish and premature.

2008 Dec 19 11:42 AM

[tiredinvestor:]

For a stock to be higher it is necessary that someone considers it still a bargain and pays more for it and so bull markets depend, basically, on a net inflow of capital in the market.

So, is it possible to call for a definitive bottom now? I do not think so: money is scarce and we are still in the deleveraging process. Normal people is busier keeping its job and regular income than investing.

Of course there can be rebounds in the market based on speculators and bottom chasers but I do not know anybody that is considering buying for the long term because they prefer cash in case things get nastier in the future.

2008 Dec 19 12:55 PM

[Big-P:]

Let me take the guess work out of this market call. I'm taking this market back through the year's lows and I'm going to do it THIS MONTH.

You're all way too bullish so you better flip those trades quickly or you're going to get hurt. I'll bottom them the second week of February and then we'll all have some fun as I jam the market higher into June.

Just a warning though, the next BIG leg down--after the June high--is going to be like nothing the world has ever experienced. Get your financial house in order (just do the opposite of those lemmings WE put in power and you'll be just fine) and get ready to buckle-down.

Not a threat guys--do as you wish--just a fact. I'm taking stocks lower (bonds too) so that we can wash-out these hedgies once and for all.

They never belonged on the same playing field with Big-P in the first place and it's time to drive them out of town...

2008 Dec 19 03:15 PM

[javnnf:]

So why would that repeat what happened &) year ago?
Does the market follow any well defined and validated mathematical model?

On Dec 19 08:29 AM Slick Irons wrote:

> This bear market has ended for now. Expect a 5% correction, followed
> by a 7% bounce. Then, I foresee an 8% correction. Lastly, I envision
> a tremendous 34% rally, in short order.
>
> Then...the BEAR re-emerges from his winter's hibernation, to wreak
> havoc on the world's equity markets.
>
>
> At least, that's what happened Seventy years ago...
>
>
>
> Slick

2008 Dec 19 05:16 PM