S&P500; has the garbage rally changed the long term charts?

Frequent readers of our posts know we prefer to look at simple, clean chart to allow for a more easy understanding of trends and bigger picture. Oh yes we do get down into the nitty-gritty hourly charts, but we keep those mostly for our premium members.

Today we’ll review if the recent rally of the February lows, which we coin the “garbage rally” since we believe it’s mainly due to very beaten down cheap stocks finally finding a bit.

If we look at the long term simple moving averages chart (LT-SMA) we observe that since August 2015 things have deteriorated remarkably, and that since February this year things have improved somewhat, but not even close to a full blown bullish picture. Simple compare the upper chart with the lower chart and you will notice the difference. Since April 2012 through August 2015 the LT-SMA chart was 100% bullish: fastest SMA above the slowest (dotted) SMA and price above all SMAs. Since August 2015 things are entirely in reverse, with the chart trying to reestablish itself since March. Click charts to enlarge.

spx lt sma

spx lt sma

The last time we saw a bearish LT chart like we have now was from August 2011 through April 2012. But by then, the benchmark/slowest/dotted SMA had already turned back up. Currently it is still pointing down. Simple put: the long term chart does not look healthy.

Can the current chart change to bullish? Of course it can, but it will require a long and sustained breakout above ATHs to re-establish it self. Something that would require months of new highs. We’ve not had new highs in almost 2 years. That by itself should say traders and investors something. The current chart thus simple tells long term investors to stay out of this market or be in it at minimal exposure.

Another way to look at the long term trends is to check the 20w, 50w, 100w SMAs. This week the 50w crossed below the 100w. The 20w already crossed below it late 2015. Going back to 1980 we find 4 occasions where each such cross occurred: red and blue dotted lines, respectively (1981/1982, 19871988, 2000/2001, 2008/2008, 2015/2016). In 2001 and 2008 the 20w<50w<100w set up meant full blown bear markets. In 1982 and 1988 it mean short term corrections.

50w-100w cross

Why the difference? Because after 1981, the market continued to close higher until 1990. In 2001 and 2008 it failed to do that. Hence, odds -3:1- favor we may already have all but guaranteed a bear on our hands. And currently SPX2040 is all the marbles, which once again was shown on Friday May 6. Con’t below table.

     Year   Beginning Price   Ending Price   Gain or Loss   Percent Gain or Loss
1980 107.94 135.76 27.82 25.77%
1981 135.76 122.55 -13.21 -9.73%
1982 122.55 140.64 18.09 14.76%
1983 140.64 164.93 24.29 17.27%
1984 164.93 167.24 2.31 1.40%
1985 167.24 211.28 44.04 26.33%
1986 211.28 242.17 30.89 14.62%
1987 242.17 247.08 4.91 2.03%
1988 247.08 277.72 30.64 12.40%
1989 277.72 353.4 75.68 27.25%
1990 353.4 330.22 -23.18 -6.56%
2000 1469.25 1320.28 -148.97 -10.14%
2001 1320.28 1148.08 -172.2 -13.04%
2002 1148.08 879.82 -268.26 -23.37%
2003 879.82 1111.92 232.1 26.38%
2008 1468.36 903.25 -565.11 -38.49%
2009 903.25 1115.1 211.85 23.45%
2015 2058.9 2043.94 -14.96 -0.73%

The chart below shows the importance of SPX2040. The blue arrows shows where the S&P500 found support at SPX2040 since 2015, and the green arrows show what happened when support broke: direct break down to SPX2020, 2000 and even the 1800s. Thus, SPX2040 holds the key. That’s maybe why 2015 closed right there?  Currently price is still above that level, but under the orange trend line and blue trend lines.

spx time fibs

In conclusion, we find LT charts in dire straits and short term charts petering at important support. Unless somebody steps up and starts hitting the buy button the charts will continue to deteriorate to a point from which there’s no return.

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.

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