S&P 500 update: assessing the state of the market without looking at price

Under our KISS principle we have developed two charts that tell us the market’s long term (LT) and short term (ST) direction. These chart are, what we call the LT Simple Moving Averages (SMA) and ST SMA. The former tells us much about the long term bigger trend of any given market index (months to years), whereas the latter tells us much about the shorter periods (days to weeks). As their names suggest, these charts are based on simple moving averages. By “hiding” price and therewith day to day noise, clear directions of the market emerge. Figure 1 below shows the LT-SMA over the past 18 months. Cont’d below.

Fig. 1 LT SMA chart turned bearish late-August last year and has remained so

spx lt sma

Clearly, price remained in a bullish uptrend until mid-August 2015. When price fell out of bed late-August, this chart turned bearish and has remained 100% bearish ever since. At that point we suggested to our longer term focused investors to start exiting the market.  In addition, we can see that even the October 2014 “Ebola scare” correction did nothing to the longer term trend. The chart remained 100% bullishly “stacked”.

Then in November-December the LT chart tried to “resurrect” itself by flattening out and trying to turn back up. This was in line with the ST SMA chart (see Fig. 2 below), which turned bullish again in October and was almost 100% Bullish by the end of December. As such we suggested this was still a good market for short term investors/traders

Fig. 2 ST SMA chart turned bearish late-August last year and has remained so

spx st sma

We were at that point also rather bullish short term, as the charts dictated us, and since several potential bullish patterns appeared to be developing. See here and here.  However, those patterns never materialized as price once again -as we all know- fell out of bed. Now also the ST SMA chart is very bearish.

So, how bad/bearish is the current state of the market? For that we need to look at the past to be able to compare then and now. In Figure 3 we show the LT SMA since late 2007, and now also included price to give you a better idea of what is happening. Cont’d below.

Fig. 3 LT SMA chart turned since late 2007.spx lt sma2

What we can observe is that since the 2007 market top, there have been 3 occasions when the LT SMAs turned bearish: Early-2008, mid-2010, mid-2011. There are, however, a few distinct difference. In 2008 price dropped below the SMAs, tried BY mid-2008 to move above them, failed, and the rest is history. In 2010, price always remained above the SMAs, while in 2011 price only momentarily (for a few weeks) dipped below the LT SMAs but had already moved above them a month later.  Of course we can go back further in time, but the patterns for bull and bear markets remain the same; and here we wanted to compare the bull since 2009 with the prior bear.

What do we observe now? Simple: price dropped below the LT SMAs in August 2015, tried to move back above them by late 2015, failed, and dropped below again. What pattern does this resemble? Only 2008. That’s all we need know and that’s the state of the market we’re in.

As you notice, Intelligent Investing tracks many lines of evidence to determine the market’s next big move, Elliot Wave, S/R, TIs and TAs are several of them. Holistic objective analysis allows us to be on the right side of the market more often than not, without any preconceived notion or opinion. We use just the facts. Just like we did here! Do you want to be on the right side too? Of course! Then please join us here.

 

 

 

 

4 thoughts on “S&P 500 update: assessing the state of the market without looking at price

  1. Pingback: Market update: bear market prediction tracking along. | INTELLIGENT INVESTING

  2. Pingback: 2001 and 2008 all over again? | INTELLIGENT INVESTING

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