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Let’s Look at the Long Term Chart

sp-monthly-long-term

I like to watch the long-term charts for a feel for major trends – this one goes back to 1992. I particularly like to compare the price chart to the moving average and to the Relative Strength Index.

I’ve drawn circles on the chart so you can see what to look for. The pink circles represent times where the monthly price chart crosses the 10 month moving average. The blue circles represent times where the market had moved into over bought or over sold territory.

The chart presents a pretty clear picture that when the price chart crosses the moving average, it usually leads to an extended period of time of an uptrend or downtrend. When the relative strength index moves above 70 (over bought) or below 30 (oversold) the prevailing uptrend or downtrend is set to reverse.

In our case, we are moving toward 70 on the relative strength index, but still have a ways to go. You can also see that the moving average has just now curled upward and has a long way to go before it crosses the price chart.

So, this chart is pretty comforting. We will likely see some downward pressure on the market to consolidate the recent gains, but it shouldn’t be an end to the current trend – if history is our guide. If you look at the chart below, you will see the current uptrend in relation to various moving average lines and technical indicators.

sp-uptrend3

Any downward pressure could push the prices back to the 34-day moving average or maybe even the 50-day moving average. But given the strength of the indicators, I wouldn’t anticipate it moving down much more than that – if even that far.

The indicators for that tell us about price in relation to volume show that the uptrend is still intact (look at the black OBV line in the first indicator below the price graph). You can also see that the two most recent green volume bars representing volume on up days are above the blue moving average line, while the red volume bar on Friday’s down day is below the moving average.

The moving average relational indicators show that the averages are moving in line with the uptrend. The black line in the MACD (moving average convergence devergence) indicator shows that the black line is moving away from the red line and that both are well above the zero mid-point line.

The ADX trend indicator shows that with the green line above the red line, we have a positive trend. Unfortunately, the black line is not above 30. A black line above 30 indicates a strong trend. This indicator is telling us that we have a moderate uptrend at the moment after several weeks of a strong trend.

The cash flow indicator at the bottom is telling us that money is still flowing into the market, one of the prerequisites for an uptrend to continue.

All-in-all, this looks good. Pullbacks should be bought – which is what we are doing with client who have recently opened or added to their accounts.

Have a great weekend, and in deference to the beauty of this chart I had a hankering for some sappy 70’s music by Miss Minnie Ripperton – enjoy!