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The 40-month Moving Average Test

The press and media often quote the 200-day ma and 50-day moving averages, and many traders and investors use and act on their signals. If investors adhere to the same technical indicators, they can influence the direction of the index or market it tracks through the self-fulling prophecy.


Death cross-sells signals across market indexes confirmed the current cyclical bear declines. However, the longer-term moving averages are more reliable trend indicators than the intermediate-to-shorter term moving averages, at least for structural trends.


The monthly chart remains the best timeframe for longer-term trends, including structural (i.e., 8 – 20 years) and generational trends (35 – 42 years). The 40-month ma has been reliable for long-term directional trends.


The press and media do not often report on the 40-month ma. The monthly moving average offers the best indication of the longer-term trend for investors. It is not too fast to produce many false signals and not too slow to miss the buy and sell signals.


Since the 1920s, the 40-mo ma has been a reliable moving average indicator that has successfully called almost all structural bull and bear trends in the SPX Index (SPX).


Violation of the 40-mo ma and the rolling over (downtrend) of the 40-mo moving average confirm structural bear/trading range markets (i.e., 1966-1982 and 2000-2013, etc.).


Successful test of the 40-month ma has led to the resumption of the structural bull markets (i.e., 1982-2000 and 2013-present).


During the Feb-Mar 2020 pandemic-induced cyclical bear decline, SPX rebounded from the 40-mo ma, reaffirming the resumption of the May 2013 structural bull.


Currently, the Nov 2021/Jan 2022 cyclical bear decline nears the critical 40-mo ma?


Will a successful test trigger the resumption of the 2013 structural bull? Or will the convincing break of the moving average warn of a structural bear?


Enclosed are the monthly charts of the SPX Index, Dow Jones Industrial Average, NYSE Composite Index, Nasdaq Composite Index, and Nasdaq 100 Index. Also provided are the 40-month moving average and the percentage distance from the 40-month ma indicator.


The popular indexes are trading near their respective 40-month moving averages, suggesting inflection points. The outcome of these tests can help decide the next structural trend.


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

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