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Long-term Moving Averages

The press and media often quote the 200-day ma and 50-day moving averages, and many traders and investors act on their buy and sell signals.


Based on the concept of the self-fulling prophecy, if enough investors use the same technical indicators, they can influence the direction of the index or market.


In mid-Mar 2022, the popular 50-day ma (3,943.52) crossed below the equally-popular 200-day ma (3,955.86), confirming a death cross-sell. The crossover signaled an intermediate-term trend reversal favoring the transition toward an SPX correction (5-10%), deep correction (10-20%), a cyclical bear (20%-plus), or a structural bear (30%-plus).


Like the mid-Mar 2022 crossover, the two moving averages have contracted, as the spread has fallen to 12 points, creating another inflection point. However, the 50-day ma trend is currently rising and the 200-day ma is declining. It is behaving the polar opposite of the prior Mar 2022 timeframe, as today, the rising 50-day ma can cross over the declining 200-day ma, confirming a bullish golden cross buy signal.


The longer-term moving averages indicators, including the 40-month, 30-month, and 200-week moving averages, remain in structural uptrends. It is reasonable to expect the monthly long-term technical indicators will outweigh the more popular intermediate-to-shorter term moving averages (i.e., 50-day and 200-day ma), at least from a structural trend perspective.


While the less popular 30-month/40-month monthly moving averages may be one of the best trend indicators for longer-term trends, as it has been reliable in forecasting structural trends (i.e., 8 – 20 years) and generational trends (35 – 42 years). The 200-week moving average is an equally reliable indicator for long-term trends.


The monthly and weekly moving averages are not too fast to produce many false signals. But also, not too slow to miss the longer-term trend reversals.


Since the 1920s, the 40-mo ma and the 200-wk ma have been uncanny in calling almost all structural bull and bear trends in the SPX Index (SPX).


Confirmed violations of the 30-mo/40-mo ma and the 200-wk ma, and most importantly, the rolling over (downtrend) of these moving averages warn of the start of structural bear/trading range markets (i.e., 1966-1982 and 2000-2013, etc.).


Successful tests of the 30-mo/40-mo and 200-wk moving averages have also led to the resumption of the structural bull markets (i.e., 1982-2000 and 2013-present).


During the recent Feb-Mar 2020 pandemic/recession bear decline, SPX slightly breached the two long-term moving averages but managed to turn above these moving averages in Apr 2020, reaffirming the resumption of the May 2013 structural bull.


The 1-year cyclical bear decline in SPX near inflection points, evidenced by the positioning of the two monthly moving averages.


Will a successful test lead to the resumption of the 2013 structural bull trend?


Will a convincing break of the two moving averages, followed by the rolling over of the trends, warn of the start of a structural trading range or bear trend?


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com


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