Stock Market Crosscurrents


A very substantial number of growth-oriented weekly charts have three similar and bullish characteristics:

  1. A break of downward-sloping trendlines.
  2. MACD cross showing improving momentum.
  3. Similar look to 2016 bottoming process.

The weekly chart of emerging markets (EEM) is one example of the widespread “we should be open to adding to the growth side of the portfolio in the coming days/weeks” look.

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As numerous historical examples illustrate, when markets try to rally from a very weak trend profile, bottoms are typically a give-and-take process that occurs over several weeks or months. Momentum is one thing; trends are another.

The 2016 S&P 500 chart below shows generic daily moving averages to illustrate basic concepts. Notice how it takes time for the moving averages to turn from a concerning look (far left side below) to a more constructive look (far right below). The S&P 500 rallied sharply off the February 2016 low and momentum improved significantly. However, 115 days of gains were fully retraced before the longer-to-intermediate-term moving averages turned up near point B.

(Click on image to enlarge)


In 2019, the S&P 500 is 27 trading days removed from the December 2018 low. The S&P 500 ETF (SPY) chart below shows the look of the same moving averages near the low (red box) and 27 trading days after the low (blue arrow). Thus far, SPY’s moving averages do not even have the early stages of a “trying to flip back to a bullish trend” look.

(Click on image to enlarge)


Since numerous 2019 weekly charts have a similar bullish look to what was seen near the 2016 S&P 500 lows, it might be helpful to understand how the trends looked 27 trading days after the 2016 low. Notice how the moving averages had a flattish/bottoming look literally days after the S&P 500 low. Bullish moving average crossovers were present 27 trading days after the low. None of those improving characteristics are evident yet on the 2019 chart above.

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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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