DROP IN OIL GIVES MARKET A BOOST -- WEEKLY AND MONTHLY INDICATORS, HOWEVER, REMAIN BEARISH
S&P 500 BOUNCES OFF 50-DAY AVERAGE... A big drop in oil today gave the stock market a boost. A selloff in bond prices boosted bond yields and supported the dollar. That in turn contributed to profit-taking in commodities. Chart 1 shows the S&P 500 bouncing off its 50-day moving average. Of more importance is its recent failure to clear its 200-day (red line) and 400-day (green line) moving averages. Its daily MACD lines have turned negative as well. Today's bounce wasn't enough to repair last week's downturn. In my view, the market is still on the defensive.
Chart 1
REVIEW OF 13 AND 34 EMAS ... One of our readers asked for an update on the 13 and 34 month exponential moving average system. I've written several times about the value of that moving average combination over all time spans (daily, weekly, and monthly). Before getting to the monthly version, let's take a look at the daily and weekly EMAs. Chart 3 overlays the 13 and 34 day EMAs on a daily S&P 500 chart and shows that the short-term trend is still positive (13 day over the 34 day). That's been the case since early April. The line below Chart 3 plots the difference between the two EMAs. Although that line is still above the zero line (which is positive), it's starting to slip. A move back below the zero line would be a short-term sell signal. Chart 4, however, shows that the weekly EMAs are still negative (below the zero line). That increases the odds that the rally from mid-March is a bear market rally. The line at the bottom of Chart 4 would have to move over zero to change that view.
Chart 2
Chart 3
MONTHLY EMA LINES ... Chart 4 overlays the 13 and 34 month EMAs on a monthly S&P 500 chart. The two monthly lines are still positive. I've explained in the past however, that the monthly EMA crossings generally occur too late to have much value. As a result, I prefer to use the difference between the two EMAs as a more timely indicator of the major trend. Chart 5 plots that line on the monthly bars. You can see that the direction of the monthly EMA differences does a better job of tracking the market's major trend. Based on that indicator, the major trend is still down. [You can plot the diffference between the two EMA lines by inserting the values of 13,34,1 into the MACD indicator for daily, weekly, and monthly values].
Chart 4
Chart 5
