CORRECTION ON CHART 6 OF FRIDAY MESSAGE
WRONG AVERAGE... Some of you with really sharp eyes may have noticed a mistake in the monthly S&P 500 chart that I posted on Friday. The chart was intended to show how the 13- and 34- month exponential moving averages (EMAs) had worked on the S&P 500 monthly chart. Unfortunately, I used a 34-month simple average instead of an exponential average. Chart 1 is the corrected version using two EMAs. The revised chart resulted in a slightly slower sell signal during 2001 (red circle). Other than that, the overall analysis remains the same. The black line in Chart 2 is the spread between the two monthly EMAs. The crossings of the zero lines (see circles) are the major signals. Turns in the black line, however, (as the two EMAs started to converge) gave much earlier signals of turns in the major trend (black arrows). At the moment, the spread is rising which means that the two monthly EMAs are still diverging. That's a sign of market strength.
Chart 1
Chart 2
