What Typically Happens When These Charts Flip?

TOPPING PROCESS DOT-COM BEAR MARKET

One of the best ways to strip opinions and personal bias out of any market analysis is to compare facts from the past to present-day facts. Near the latter stages of a major stock market topping pattern that formed between 1999 and 2001, the S&P 500’s 100-day moving average dropped below the 300-day moving average. The slopes of both moving averages rolled over in a concerning manner.

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ciovacco-short-takes-100-300-av2.png

TOPPING PROCESS FINANCIAL CRISIS BEAR MARKET

All of the same boxes could be checked during the latter stages of the topping process in 2007-2008. The turn in the moving averages and the 100’s drop below the 300 was indicative of shifts in the intermediate and long-term trends, which speaks to a shift in expectations about future economic outcomes.

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ciovacco-short-takes-100-300-av3.png

By the time the 100-day recaptured the 300 day in the 2000 case, the peak to trough decline in the S&P 500 reached 49.15%; the damage in the 2007 case was 56.78%. Therefore, it might be helpful to ask:

Does June 2019 look anything like the major stock market peaks in 2000 and 2007?

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short-takes-ciovacco-capital-2003-2009.png

Given really good things happened after the bullish crosses in 2003 and 2009 shown above, and given the look of the 2019 chart below, it is difficult to make the argument the S&P 500 is currently in the process of forming a major peak similar to the peaks in 2000 and 2007. In short, the 2019 chart looks more like the major bottoms in 2002 and 2009 than the major peaks in 2000 and 2007.

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ciovacco-short-takes-100-300-a.png

WHAT CAN WE LEARN FROM THE 100’S CROSS OF THE 300?

Since 1949, how many times has the 100-day crossed above the 300-day? The answer is 20 times, including a bullish cross on July 15, 2003, and a bullish cross on September 25, 2009; both occurred after the major bear market declines. What happened next in the stock market? One to five years after the bullish cross, the S&P 500 was higher in roughly 95% to 100% of the cases with average gains ranging from 15.45% to 66.38%.

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Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit ...

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