Weekend August 18, 2012
WE received a good question from a particularly alert reader concerning the crossover of the 50 and 200 month moving averages. When the 50 crosses to the downside of the 200, in classic tech talk this is known as the death cross, ie from which there is no return. The idea is that since the monthly MAs are so slow moving, this signals a lot of downside action. Here is the chart the article sites.
French Stock Market CAC
Only the 50 and 200 are shown here to replicate the same chart. Now to address his question.
-Recall that everyone on the planet has these same charts and indicators, even those SWIFT traders in Bulgaria. And recall the most quantitative programs to trade stocks (like that pesky glitch laden one recently installed at Knight Capital) use these two MAs.
-Having said that, the French market like most headed down in 2008 and then never got above the 200 month AND then the 50 MA again. Truly it does look like its curtain time for France.
-Also recall that most major market indexes are price or volume weighted, it tells us very little about an equal weighted index or what the market internals are doing, like the bullish percentage or summation index.
-Recall however that markets consist of fractals, smaller fragments of time that move at a different tempo. This is what makes interpretation difficult. Let's 'telescope the CAC from different time perspectives.
Weekly French Stock Market
-we have the same series of higher lows since last October
-a confluence of MAs lies overhead. On the one hand that is huge resistance, the market did rise above them in early 2011. The mood is generally negative, no doubt many are adding shorts here anticipating that the market will fail, one reader noted that one of the Usual Hedge Fund Suspects was on CNBC Friday going short the US market.
Now let's examine the daily chart.
This is a different picture altogether. Our 50 day MA is about to turn up above the 200, that is the blue line over the red line. And note that price has poked above the pink downtrend line form July 2011.
Admittedly I have never set foot in Quebec or France, don't speak the language, and have only had escargot one time. But my bet would be that the CAC surprises everyone with a ten percent move back to 4000. The Euro is also trying to break above its MAs, and my guess is that it will. Note the nice move up after CAC last touched the 125 day MA green line. that was literally the quantitative programs kicking in and the French Hedge Funds following their computers on the buy side.
But the question was about the US market, so
New York Stock Exchange Daily
The 50 day MA has turned up, the trend is still up. And we have the summation index in the lower panel looking well at least positive.
I would rely more on the NYSI at bottom, if it returns to its 2012 high, the NYSE will also make a new high.
So far so good. the price index is pulling the 50 month MA up, it survived a successful summer test. And the 50 month has not crossed the 200 month. Between money leaving TLT, and the probability that Bernanke will unleash another stimulus of some sort, looks like higher prices ahead, note the positive look to the NYSI in the lower panel. Just to be fair here is the SPX monthly.