Long Term Charts Near Crucial Juncture

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 (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.

Disclosure: None

Comments

[socrateaz:]

Interesting: Opportunity cost sounds good! But to me I also know the last to buy is the last to become enthusiastic. If I saw increasing value in stocks, I would be all for buying them. I do not and under the current policies do not see things improving in reality. So, I will do my thing and you do yours.

Oct 13 07:19 PM

[worldexplorer:]

I really have to consider the motive of someone who would make a statement like " . . . and the like would be wise to consider the opportunity cost of missing a potential multi-year bull market." If you're telling people who have not been in to get in here, you're giving poor advice by all counts. Based on your technical analysis, you should be advising people to wait until after the end of the month when the signal is clear. At that point there would also be a clearer view on earnings and the direction of the market. The market has been stagnant for the past month. You are right - we are about to find some direction for the short-term future. Let's wait until we get it.

I rode out the storm and did very well, but moved all into cash 9/15 in order to lock in my gains and preserve capital. If all is clear after 11/1, I go back in. At most I miss 10% upside, but I doubt it. As of this point I haven't missed any upside,

Oct 13 08:44 PM

[untrusting ...:]

A better approach would be to take your indicator back to maybe about 1900 and see how it handles predictions in multiple different market up and downs. Who knows how valid the prediction would be then?

Plus this market environment is substantially different for multiple different reasons not the least of which are massive Fed liquidity supplied, large credit contraction, hugh debt overhang, hugh bank losses going forward yet to be recongized, large declines in the dollar, and many others.

A trend is only a trend until it reverses, and given the extraordinarily weak fundamentals in the US economy and the US markets, the odds are heavily against this being any type of LT bull market. A governement induced secular bear market rally ... yes, but LT bull market .... highly unlikely.

Oct 13 10:20 PM

[SeekingTruth:]

If the fourth quarter is not a "lock in gains" month for the Big Guns, then I clearly do not understand market dynamics (probably true).
I suspect the door watchers are watching other door watchers and waiting to see who will bolt first.
There is more hype, propaganda and false bravado in this market than I have ever observed (It's worked so far).
We'll see if that means anything or not.
Time to check those PUT premiums before they skyrocket up, ie. , at least be aware of them.

Oct 14 02:57 PM