Let’s pull the camera back on the market to see where the S&P is on a monthly chart for broader insights:
Currently, price is trapped between its 20 and 50 period exponential moving averages.
The last time this happened was in 2001, right in the middle of a major bear market move. Are there similarities this time as well?
The averages often provide key resistance and support to advancing (and declining) moves, and as a market changes trend, deeper and deeper retracements occur.
The 1,400 area has strong resistance on the daily and weekly chart, but did you know it was also a strong area of resistance on the monthly chart as well?
Currently the 50 period EMA is providing support to the market, and it has yet to close beneath this key average yet.
Also, notice that the last five months in the market have closed lower than they opened. Early 2007 gave us the last occurrence of a back-to-back monthly decline, and before that we’d have to go back to early 2004.
The last time the market declined five months in a row was early 2002. April currently is poised to give us our first higher monthly close for the year.
Notice also how volume in the market has trended higher, only to spike radically higher at the start of 2008.
To end, let me simplify the graph above by plotting only the 20 month exponential moving average:
Three times since 2000, the market has crossed (with a close above or below) its 20 month moving average. Each time, the ‘trading signal’ or position (posture) signal was rather accurate.
The market crossed and closed beneath this important average in January, 2008. Was this another larger signal to exit longer-term positions?
Bulls would certainly like to see a clean close (or a series of closes) above the key average, but until then, the market may remain ‘guilty until proven innocent’ by rising above this often watched average.