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:

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:

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.