The old saying that “It Doesn’t Have to be Rocket Science” when it comes to the markets got to be an old saying by being true for all these years. Despite all of the increases in technology and computer speed, in the end it mostly comes down to “Is price rising or falling?” Let’s consider one the simpler approaches.
Figure 1 displays four major indexes – The Dow, the S&P 500, the Nasdaq 100 and the Russell 2000.
There is a great deal of useful information contained in these four charts. To wit:
*3 of the 4 are presently below their respective 200-day moving averages, i.e., in “downtrends”
*The 200-day moving average for all but the Nasdaq has now “rolled over” and is declining
Interpretation can be fairly simple:
*If these trends do not change, more trouble lies ahead
That wasn’t so difficult, was it?
Of course, for most people that’s “not good enough.” We want to know in advance IF these trends will or will not persist. My candid reply is “Good luck with that.”
My other response is “be patient, and keep a close eye on these indexes and these moving averages”:
*If the Nasdaq fails to hold above its moving average and joins the others, chances are serious defensive action (i.e., raise cash, hedge, etc.) is in order
*If the 3 down trending indexes follow the Nasdaq higher (and also this) then the worst is likely over and a much more aggressive investment stance would be warranted.
In the immortal words of Tom Petty: “The waiting is the hardest part.”
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