DAILY AND WEEKLY 13 AND 34 EMAS REMAIN NEGATIVE -- MONTHLY EMA SPREAD WEAKENS BY MOST IN FIVE YEARS -- WILSHIRE 5000 GIVES SAME SIGNALS

CHECK YOUR AVERAGES ... One of our readers asked for an update on the 13 and 34 "weekly" EMAs (exponentially smoothed moving averages), which I've written about several times in the past as an excellent indicator of market trend. He asked why the EMAs for some of the indexes like the Dow and the NYSE Composite hadn't turned negative. I'd suggest rechecking that you're using the right numbers. The first three charts show that the S&P 500, the Dow Industrials, and the NYSE Composite Indexes have been on a weekly sell signal for over a month.

Chart 1

Chart 2

Chart 3

WILSHIRE 5000 SHOWS SAME BEARISH SIGNALS... Another reader asked why I didn't use the Wilshire 5000 more often. After all, it is the broadest measure of the U.S. market. So here it is in Chart 4. It looks pretty much the same as most other major stock indexes. I'm also using it in Chart 4 to make the point that the recent downside crossing of the weekly 13 and 34 week EMAs is the first one since the bull market started in the spring of 2003. That bear signal can be seen more clearly in the line below Chart 4. That line plots the spread (or difference) between the two weekly EMAs. [You can create that line by inserting the values of 13, 34, and 1 into your MACD indicator]. The 13-34 week EMA spread crossed over the zero line (turned positive) in the spring of 2003 as the bull market was starting. During this January, the spread fell below zero for the first time since 2003. That's an important bear signal.

Chart 4

DAILY EMA LINES ARE STILL DOWN AS WELL ... The daily EMA lines (which measure shorter-term trends) turned negative in early November and are still negative. Charts 5 and 6 show the 13 and 34 EMAs turning down during the first week of November for both the Wilshire 5000 and the S&P 500 indexes. The two lines below the charts, which represent the difference between the 13 and 34 daily EMAs, have been below their zero lines since then. The fact that the two EMAs stayed in negative territory throughout the recent market rebound helped prevent any premature buying from taking place in a bear market bounce.

Chart 5

Chart 6

MONTHLIES WEAKEN AS WELL ... Chart 7 shows the current position of the "monthly" 13 and 34 EMAs for the S&P 500. The lines are still positive. However, the spread between them is weakening. That's because the 13-month EMA has turned down for the first time in five years. Chart 8 shows the relationship between the two EMAs more clearly. Although still well above their zero line, the spread between the two EMAs has fallen by the largest amount since 2003. Since monthly EMAs are less sensitive than weekly and daily versions, monthly crossings usually take place well after a major trend change (sometimes as long as a year). That being the case, the direction of the spread between the two monthly lines is more timely. Chart 8 shows the monthly spread turning down in 2000 (red arrow) and up in 2003 (green arrow) just as those major trend changes were taking place. That being the case, the recent downturn in the spread is another important negative warning.

Chart 7

Chart 8