Intermediate-to-longer-term trend trading entails an investor holding on to a position for long periods to maximize the returns of the uptrend. The period may be as short as a few weeks, months to many years, or decades. Successful longer-term investors tend to focus on the dominant and primary trends and ignore the shorter-term trends or noise/fluctuation in the marketplace.
With the press and media focusing on the day-to-day fluctuations, many investors are distracted and cannot see the big picture because they focus too much on the details. Seeing the forest from the trees enables investors to capture the dominant and prevailing long-term trends.
It may be best to review the weekly charts to help uncover the structural to secular trends that can typically last for one to two decades or more. History tells us that rallies in structural/secular bull markets are compelling and tend to last longer than expected. Also, the reactions or the counter-trend declines tend to be shorter and weaker than the rallies. On the other hand, during structural/secular bear markets the downturns are powerful, and oversold rallies or reactions tend to be short and fleeting.
Markets consist of different trends (short, intermediate, long-term, etc.), and recognizing these trends leads to successful investments.
Enclosed are two weekly charts of the S&P 500 Index – one overlayed with the 200-week moving average and the other with the 30 and 40-week moving averages.
200-week moving average analysis
In the past 70-plus years, the 200-week moving average has been a reliable indicator, helpful in determining the sustainability of SPX structural trends (8-20 years). SPX maintains above the 200-week moving average (3,697.59) or temporarily violates the moving average but resumes its longer-term structural bull trend. For instance, during the 1949-1965 structural bull rally, SPX successfully rebounded from the 200-week ma on three occasions, including August 1953, Nov 1957, and May 1962.
Also, during the 1982-2000 structural bull, SPX found key support along the 200-wk ma (3,919.33) in Jun 1984, Nov 1987, and Oct 1990. Once again, during the current structural bull of May 2013, the 200-week ma provided support in three recent declines during Feb 2016, Dec 2018, and Mar 2020-Apr 2020, recently in 2022. SPX again successfully rebounded from the 200-week ma during the Oct 2022 downturn (to 3,674.84).
In summary, during structural bull trends, the 200-week ma can provide significant support on downturns. However, during structural bear/trading range markets, the 200-week ma tends to whipsaw and generate inconsistent buy/sell signals.
The Jan-Oct 2022 setback hints at another cyclical bear within a structural bull trend (May 2013-present). A convincing breakout above the Jan 2022 high (4,818.62 - daily and 4,766.18 - weekly) reaffirms the resumption of the May 2013 structural bull.
30 and 40-week moving average analysis
The primary and dominant trend remains the structural bull uptrend from the 2008/2009 bottom (666.79), now trending near 3,154 (red dashed line), providing long-term support.
Two other uptrends from the 2009/2011 bottoms currently reside at 3,835 (burgundy dash line) and 3,968 (burgundy dash line), respectively, offering intermediate-term support.
A heated battle is developing between the bulls and the bears as SPX tests the 30-week ma (4,287.84) and the 40-week ma (4,218.34). The ability to find support here can end the Jul 2023 correction, allowing for the resumption of the uptrend.
On the upside, 4,607.07 (Jul 2023 high) is initial resistance, and above 4,818.62 (Jan 2022 all-time high) and 4,860 (2018 internal trendline - black dash line).
The upper end of the trendlines suggests that in a structural bull trend, SPX can rally to 5,624/5,672/6,109 (top of the 2009 uptrend channel - bright blue dash line, bottom of the 2004 uptrend channel - blue dash line, and the top of the 2004 uptrend channel – green dash line).