I find the current set up in markets fascinating. (Yes, I need to get out more.)
The rally in January caught most traders off guard and took the ASX 200 within a whisker of its all-time high.
The bullish articles were coming thick and fast as the China reopening story took hold and hopes that the Fed was nearly done raising rates inspired confidence.
Something I’ve noticed over the years is that the papers just reflect whatever the past month of trading has done. If prices have rallied for a month or two, most articles are bullish. If the market sells off for a month, the articles are bearish.
It can be difficult to know which way is up when you’re being tossed around by so many different views coming at you day after day.
I try not to have a strong view one way or the other and allow the charts to do the talking.
Despite the rally we’ve seen over the past month, the long-term charts remain bearish.
That may sound strange with the ASX 200 near its all-time high, but after the big sell-off we saw last year, the long-term moving averages remain in a downtrend.
The S&P 500 is the most important and currently most interesting chart, so I focus on it in today’s Closing Bell video as well as having a look at the ASX 200.
I show you that the slope of the S&P 500 20-month moving average has just turned down for the third time in 25 years. The last two times gave prior warning to the 2001–03 and 2008 sell-offs.
The S&P 500 remains slightly above its 200-day moving average, and I suspect the momentum will turn sharply negative if we head under there over the next month or so. I give you the levels in the video above.
The weekly trend is up, so it’s not time to panic yet, but traders and investors need to be aware that the big picture remains bearish, so any buying should be done with eyes wide open.
Until next week,
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Murray Dawes,
Editor, Money Weekend
