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I am going to forgo tonight's general discussion of the above two clusters of charts to focus on the 30 year chart of the S&P 500 Index. (last night's blog comments about each individual chart apply quite well to the charts tonight, only things have worsened.)
I have added a 30 year chart of the S&P at the bottom left corner of the lower cluster. This is a simple 5 ma and 10 ma chart. Each bar represents a year of trading. The last bar, the 2010 bar, will still be an active bar until Jan. 1, 2011.
The 5 and 10 ma lines work the same regardless of what time period of bars they are applied to. This yearly bars chart works the same way as the The Daily bars chart seen in the lower chart cluster also, Row 1, charts 2.
As you see on the Daily bars 5/10 chart, when the red 5 ma line is above the green 10 ma line we have a situation where each time the red 5 brushes against the green 10 the price is driven up, sometimes several times.
When the red 5 line is below the green 10 line, then we have the situation where each time the red 5 brushes against the green 10 the price is driven down, sometimes several times, ( such as what is happening right now on the daily bars 5/10 chart - lower chart cluster, row 1 ,chart 2)
The reason that I am posting this 30 year chart of yearly bars is to show that a underside 5/10 pushdown has now set up. THIS 5/10 PUSHDOWN SET UP HAS NEVER HAPPENED BEFORE ON THE S&P 500.
It is critical to understand how a 5 period moving average works. The last bar - the active bar - the price goes up and down that bar as the price does so. As the price goes up and down that bar the tip of the red 5 ma is pulled up and down to wherever the price is at any point in time during that bar. ( A bar is simply a visual reprentation of that paticular time period.
Earlier this year when the S&P index price was at its high, the tip of the red 5 ma was actually starting to peek above the green 10 line, which if this yearly bar finished with the red 5 slightly above the green 10 line it would indicate a 5/10 up cross and foretell of at least a year or two of upward market. The reason that the tip of the red line stays so closely to the price is that the 5 is an EMA - exponential moving average, whereas the 10 is an SMA - simple moving average. This is the most commonly used moving average pair in charting.
Now that the market has broken down the tip of the red 5 line has come down with the S&P price and is now underneath it. The problem is that the red 5 line is also below the 10 line during the 2009 trading bar, and during the 2008 trading bar the 5 crossed down through the green 10 line.
The reason that I have been saying that they absolutley had to stop the collapse of the daily chart last week is because the situation of it selling down any lower than we were last week is it would cause the red 5 ma line to start curving downward - the powerful phase of a 5/10 pushdown.
Trading and investing professionals all over the planet follow the U.S. S&P 500 for leadership. Everyone is seeing this morphing take place right before their eyes. This has never happend before. If the current yearly bar closes out Dec 31 at no higher of a level than where we are now, then we have a full steam 5/10 pushdown that could easily take the markets down much lower over the next few years.( Far more than the 2008-2009 40% sell down.
This chart is not a done deal until Dec 31. Until then the powers that be have 4 months to turn the chart back upward in a big way. Being 4 months away, at this point this chart only projects what is likely to happen if they don't get the market considerably higher than where its at now by year end.
I am going to keep this chart in the cluster from now on. Over the next 4 months we can monitor their progress in trying to undo what is already setting up.
Alan
