Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Sunday, January 10, 2016

The Universal Bull / Bear Line

Anyone even slightly versed on the stock market or trying to actively manage their own portfolio is well aware that the 200 day SMA is where institutional investment firms enter or exit stocks as they consider this to be the bull / bear dividing line.  When an index or stock is below the line it is considered to be in a bear market and when it is above the line in a bull market.  The problem is that looking at a 200 SMA on the daily bars chart it's difficult to get a feel for the big picture.  The easy way to see the big picture when looking at a stock and its daily 200 SMA is to look at the 9 SMA on the monthly bars chart instead.  This is almost precisely the same line as the daily 200 SMA but it lets you see a much bigger picture in the same size chart.  The two clusters of charts below are of the stock indices and the most popular stocks among investors.

 Click on images to enlarge

Looking at the first row of the top cluster, we see that when the new monthly bar opened five days ago it was exactly at the 9 month SMA line on the NASDAQ, S&P, DOW, SPY, and QQQ.  As soon as the markets took one tick downward the bear market began for all these indices.  It's that simple.  The results for the end of the first week show how disastrous the first few days are when a symbol changes to the lower side of the line, bear market territory.  

Big money is made in the first few days when an index or stock first enters bull market or bear market territory.  Besides the stock indices making their first move into bear market territory this week, other notables are PCLN, BAC, BIDU, UAL, and BA.

Ones to watch for the coming week that are beginning to cross the line are TLT, VXX, & GLD which are all beginning the cross to the upside accordingly as the stock  market indices have already crossed to the underside.  Also, watch NFLX, SCTY, SBUX, and V as they are straddling the line on Friday's close.  Worth noting too is that the  $NYA and GS, the two leading indicator symbols for long term market direction, have been in a bear market for nearly six months already.

Trade well my friends


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