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Making sure to keep some powder dry

One of the charts I maintain in my daily crosscheck is the percentage of stocks on the NYSE above their 50 day moving average.  The most striking feature about this chart to me is the cyclical nature of its movement.  It appears that quite consistently, approximately every 3 to 4 months – this percentage drops precipitously. It’s almost as if you can use this seasonality to anticipate periods of consolidation in the market.

If you click on the chart posted to the right, you can see a larger view of it.  Behind the candlesticks depicting this percentage above their 50 day MA, you can see a black line showing the price of the S&P 500.

The second thing that strikes me about this chart, is that the degree to which these periodic consolidations (declining prices for the stock market) varies substantially.  Some of these signals, using either the slow stochastic or the price oscillator (similar to a MACD) presage large drops in the market.  Other similar signals occur with consolidating (but still overall rising) periods in the market.  Take away point – I wouldn’t suggest using this as an overall buy/sell signal.

That being said, I am anticipating a period of consolidation in the market.  I’m only about 50% invested right now, having been stopped out of a number of my positions.  I’m not holding my breath for Armageddon, as the bullish percents for all the major indexes and the individual sectors continue to be on offense.  Buyers appear to still be in control of this market.

All I’m saying is that nice opportunities could be imminently appearing for the trader with some cash available.



Disclosure: No positions