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Market Struggles At The 50 Day Moving Average (Again) at Trader’s Narrative

Today’s market weakness isn’t surprising when you consider that the S&P 500 has had a very difficult time getting above the simple 50 day moving average:

S&P500 relative to 50 day moving average dec 2008

The blue line is the 50 day moving average and the lower line is the distance between the index and the average.

I don’t know if the third uptrend break will be the charm or whether the market will simply waffle around until it can muster a definitive break above the 50 day moving average.

The percentage of S&P 500 stocks which are trading above their 50 day moving average has also risen sharply. But since the market top in October 2007, this indicator has been making lower lows. In October it reached 85%, then in May 2008 only 80% and August 2008 it didn’t even pierce 70%. So I wouldn’t be surprised if it peaked at a lower level again:

S&P500 and bullish percent dec 2008

What makes this difficult waters to chart is that all of this may not even negate that we have already seen the bottom for the market. As in most bear markets, we may revisit the lows but not break them significantly. Only the 1974 bear market, I think, put in a prominent V bottom. Other bears have died a slow death over months and months. The previous bottoming process, for example, took from July 2002 to March 2003.

I’ll be watching sentiment for clues on just how despondent the average investor is out there. If most have given up any hope, we may yet see an end to this grueling bear.

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4 Responses to “Market Struggles At The 50 Day Moving Average (Again)”  

  1. 1 Senta

    As time goes on - eventually the market will break the 50 DMA. Personally I think the bottom was Nov 20th - but we could come close to it in the next few months.

    Even a scandal like Madoff has not affected the market much - my guess is that most of the retail speculators are out of the market and sitting on the sidelines or they have gone broke.

  2. 2 pej

    Which bottom? The short term bottom maybe, but the market is still very expensive in terms of earnings AND the expectations are still quite high for 2009…

    REAL Inflation adjusted, the market needs to go a lot further down before bottoming.

  3. 3 Alec

    I was wondering if the % of S&P stocks above 50 day MAs can be looked up online or is that something that you’ve designed software for?

    Great blog by the way, I’m a big fan.


  4. 4 Babak

    you can get the data online: stockcharts and indexindicators
    thanks for the kind words :)

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