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More On The 200-Day Moving Average

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In the May Investment Commentary, I wrote about the importance of the 200-day moving average and the fact that the market had gotten way ahead of itself by moving too far from the 200-day moving average.

I thought today, you might like to see that point illustrated. This chart, which I’ve shown in the past and annotated with circles around the times when the Relative Strength told us a turn in the market was coming, also shows you market movements relative to the 200-day moving average.

You can see that the market always returns to the 200-day moving average. Its a pretty big deal when it crosses the 200-day, as most times that is a signal that a major change in the complexion of the market has occurred – from bull to bear or vice versa.

In looking at the chart, you can see that we are close to touching the blue line with the current market movements. It is impossible to know if we will actually get all the way back to the line, around 1097 on the S&P 500 Index from the current 1110 level – that represents only a bit over 1% downside from here. If this bull move off the March 09 lows is to stay intact, we may have seen the low in the market since we are so close to the 200-day average.

My gut feeling is that we will get a rally on Monday based upon the IMF rescue plan for Greece that was approved this weekend – we may or may not close up, but after the big down days we’ve had, with the S&P 500 down 6.4% last week (yes, it falls within the 6% to 8% correction I thought we’d see), we are due for a bit of a rally and to make some money on the positions we added last week.


Click here to watch Easy Rider

Return of Trivia! This December 1969 movie was the explanation point on one of the biggest years in our history. Can you name some of the seminal events of 1969 that changed our country? I’ll give you the easy one: Man on the Moon. Here’s a clue for a few others: Martha’s Vineyard, Helter Skelter, Let It Be, and “I Am Not a Crook.”

Enjoy the rest of your weekend and I’ll be back with more on the markets.

Mark