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It’s a Forest and Trees Sort of Thing


It’s easy to get focused on the current happenings in the market and lose track of a longer-term view of how the current happenings fit into context, sort of like not being able to see the forest for the trees.

If you look at the chart above, you’ll see that we have passed a fairly momentous event – the S&P 500 Index weekly chart has crossed above the 200 week moving average. Crossing above and below the 200 week moving average is not a common thing, and generally it means that the direction of the market is confirmed for at least the intermediate term.

Is it a certainty? Not at all – look at 2001 where the market moved above the 200 week average for a short time before dropping precipitously and staying below it for a few years.

You can also see that in January, we moved up to the average and were turned away. Having broken through it is a good sign that there is strength to this move on an intermediate-term basis. On a short-term basis this chart means nothing – we can have a pull back that can be painful yet the weekly trend can stay intact. However, any move back to the 200 week average that does not breach it to the downside can be used as a buying point for those that are under-invested.

If you read the previous post, you know that I anticipate a short-term pullback based upon the overbought status of the broader market. However, any pull should be contained to the 200 week average and could be used as a fairly safe purchase point.

I’ll keep you in the loop on these technical levels as we move through the next few weeks to see how it all plays out.

It’s been a strange Sunday – I’ve spent it in equal parts working on client investment portfolios, watching basketball, and watching CSPAN for the health care debate and vote.

Your trivia for tonight is to figure out which popular movie sequel this appeared in. The movie is about a law student that interns on capitol hill.

In a little while, we should know the results of the vote for health care reform. As I’ve been watching today, it sure looks like it will pass.

Have a great week!