Monthly Overview of the Major Indexes

Jun 22, 2008: 2:13 PM CST

Have you been keeping track of what the larger picture is on the charts of the major US Stock Market Indexes?  If not, let’s take a moment to see what the Dow, NASDAQ, and S&P look like on their monthly charts.

S&P 500:

The S&P is beneath its peak in 2000, and appears to be forming a similar pattern as it did before the 50% market drop (caveat – I am NOT forecasting such a drop).

Price is trapped between its key 20 and 50 period EMAs, and just a few more points lower would officially break its moving average support line, and would cause a major long-term sell signal.  With one more trading week to go in June, a monthly close beneath this zone is certainly possible, and if that happens, it would be difficult to envision many bullish scenarios that could add comfort to investors.

Although price could still find support at this level and ‘bounce’ back up, be prepared to consider shifting long-term investments should this level be definitively broken.

Also, notice the momentum divergences that preceded the turns in the market.  Volume is surging to the upside as  investors are more uncertain about what to do.  Notice also, that volume has declined on the recent upswing in price, which will likely be defined officially as a “true bear market rally”.

The chart of the Dow shows a very similar picture, only that price is actually higher than its 2000 peak.

Dow Jones:

Price is testing its key rising 50 period EMA, but a monthly close beneath this level would potentially be a significant long-term sell signal.

NASDAQ (logarithmic scale):

The NASDAQ chart looks different than the others due to the stratospheric rise of the technology stocks and the euphoria that occurred in 1999/2000.  Price is just shy of 50% of the all time closing high, and extremely unlikely to take out that level anytime soon (as in, within the next few years).

Price sits above its 50 period moving average, which has served as support ever since 2004.  Price appears likely to retest this level which is over 100 points away.

Keep in mind that I’m using a logarithmic chart for this index, so the height of the actual peak is much taller than the chart would convey.  Without using a log scale, the bottom prices looked extremely small and insignificant for comparison purposes.

A large juncture in the market is just around the corner, so be prepared to alter your strategies should the market take a turn for the worse in the near future.  It could be a harbinger of things yet to come if the charts indeed are similar to their counterparts around the year 2000.

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1 Comment

One Response to “Monthly Overview of the Major Indexes”

  1. Richard Says:

    Stocks have fallen on risk aversion to bank debts and the exhaustion of the yen carry trade. Politial instabilities are rising; gold has proven to be a lifeboat of safety in past times of economic and political downturn.