I know I advocated "keeping it simple" in my most recent Option Advisor® commentary by focusing on the highly popular 200-day moving average as an indicator of the market's health. But sometimes the "road less traveled" gives you an analysis edge, and in this vein I'd like to take a look at the 160-month moving average of the S&P 500 Index (SPX).
So exactly what can a 13.33-year moving average bring to the table? Let's take a look at the accompanying monthly SPX chart and see. Note how the 160-month moving average perfectly contained the 2002-2003 lows. Specifically, at its October 2002 lows, the SPX traded within 5 points of its 160-month, and in March 2003 (the final bottom) it traded within 9 points of this trendline. Fast-forwarding to the dark days of September 2008, the SPX, while staggering, managed to close the month above its 160-month after a brief downside penetration. But after the SPX closed below this trendline on Oct. 2, 2008, the market plunged and never looked back, and by late November 2008 the SPX had declined by as much as 36% from its September closing level.
Yesterday, the SPX closed at a new recovery high of 1,159, just 3 points below its 160-month moving average. A daily close above this moving average would be encouraging, but even more encouraging would be a close above this level at month's end. While there are many pieces to this market puzzle (presented to you very coherently each weekend by our Todd Salamone in his Monday Morning Outlook), a close by the SPX above its 160-month moving average on March 31 would cause me to believe even more strongly that we are in sustainable bull market mode. We're going to watch this level carefully, and I'd suggest you do this as well.
Discuss this article:
"You describe concern about the 160 month MA you drew on the SP chart. Your conclusion regarding the 160 month MA seems like waiting until the 'horse has already left the barn' to me because: 1. It contains only one set of points at the prior low 2. The 160 month MA seems relevant on relatively FEW other index charts and 3. Of the indices that it could seem relevant ($rut.x and $tran for example) the 2010 picture is MUCH different than SPY suggesting that higher prices have already occurred. While the initial support at your 160 month MA does appear similar to OEX, one could have made about the same support conclusions using 50% or .625 fib reactions. Bottom line: It seems like too few points, and that those can be drawn in after the fact but would always be too late to trade. I do appreciate your other articles. Thank you. john263" Respond
"Well, we did close above 1162 on March 31. So does Bernie think we're back in bull mode for the long term? I keep seeing a push down from resistance first before we retest and breakout again over the 160. But would like to know what he thinks. Also, did the 160-month average actually contain the 2002-2003 bottom *when* it was happening? My understanding of MAs is that it has moved and would not be the same then as now. Correct or no? " Respond
"22 year double top? Looks like 8 yrs to me." Respond
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