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I have marked the monthly MACD buy and sell signals on the S&P 500 index chart using green (for buys) and red (for sales) vertical dotted lines. For trading purposes investors should use the etf equivalent symbol SPY. I've backtested this for the past 25 years and it has kept an investor on the right side of the markets, insofar as the S&P 500 index is concerned. There are not a lot of signals but for long-term accounts like 401K's , burned in the big downturns , this is perhaps a 'good enough' timing tool to follow. I don't personally believe you should hold index funds when the MACD is on a monthly sell signal. As for individual stocks you will find that few will benefit you when the market is on a monthly MACD sell. Until the monthly MACD returns to a buy signal you should certainly put stops on any individual securities owned, in my opinion, to avoid losing hard to come by gains. Yes, I understand how bullish markets have been since day after XMAS but stops are in order
This monthly SP500 chart covers the period that includes the Great Financial Crisis (GFC) thru the most recent month end. Had an investor been gifted enough to have bought the SP500 low following the GFC, which occurred on March 6, 2009 and held through Jan 31, 2019, the return would have been 295.7%., excluding dividends. Using the monthly MACD as a signal to buy, one would have bought back into the market on August 3rd, 224 points off the low and the return would have been 193%. So, conclude what you will. The monthly MACD pointed out the two major tops in 2001, 2008 and the more recent one in Sept. 2018. That comfort is important to me because simply put, I don't trust the markets to always recover over short periods like they did in 2008/2009 and like they have recently. The comfort I want comes at a cost. And it can appear high in a context comparing returns off the absolute bottom, which almost no one would buy.
I created the chart after the Sept. 2018 plunge in the markets got underway because some of my friends asked me how low the markets could go. The initial plunge halted itself at the upper trend line which connected the March 2009 low to the first major low in the recovery. Because that trend line held the uptrend remains unbroken. Since the trend line held we have had a powerful rally back up. This volatile action to the downside and the big rebound back up is tracing out what technicians call a broadening pattern. Those patterns develop when markets are really volatile. I'd say that the potential trade war with China and the perception that the Fed might be unwilling to backstop our markets are what produced the big downdraft in the Fall. The same items appear to have caused the big rebound. It nows looks as if the trade war will end and that the Fed is indeed chaired by a person willing to backstop the markets. Many believe that broadening patterns are bearish. The evidence isn't so clear that they are. Tom Bulkowski has research on the matter and it did appear to me that the average decline from the patterns, if they break downward, are more severe than the upside breakouts. But like everything else we will have to wait and see. Personally, I'm going to stay defensive until the monthly MACD turns.
The SP 500 has pushed higher than I originally expected based on the technicals. I thought that there would be a retest of the December lows by now. But as this market has moved higher, the Fed has shifted stance and the trade war looks as though it isn't moving forward. The flush in the Fall was powerful enough to wash even many very strong handed bullish investors out. At the December 24 low bearish sentiment was extreme. What followed, as we know, is a very powerful counter trend rally. As of Friday's close the SPX had broken above its October, November and recent highs. Despite doing so there are several divergences appearing on the charts as noted. On this chart there is a very visible divergence between RSI and price. On a chart where I show the various A/D lines and the % 200 day NYSE indicator, most of those are negatively divergent as well. I don't know if it will happen, or if it does whether it will be more than a one day thing, but Tom Bowley has an interesting article this weekend about the Monday's following option expiration. He's expecting Monday to be down. We will see!
Trend lines can help spot important inflection points and have I put a lot on this chart. Since the December 24 low, we have had a tremendous push back toward the highs (within 4%). This chart includes three breadth measures. Total NYSE advance decline line, stocks only NYSE advance decline line and % NYSE stocks trading above their 200 day moving average. We had a breakout in the SPX this past week above the October, November and recent highs. Despite the breakout we only had one of the three breadth indicators confirm the new high, the total A/D line. Neither the stocks only or the % over 200 day indicators confirm. Likewise there is a negative divergence between RSI and price on the most recent push up. This, the breadth indicators not confirming and the overbought VIX suggest to me that some sort of corrective action is forthcoming.
This is a commonly used Vanguard ETF that mimics that entire market. It provides greater diversification than the SPY that mimics the S&P 500. Accordingly, I prefer it. It has only existed 20 or so years, so its chart is not as long as the SPX presented above. Similarly I've marked the MACD buy and sells with green and red vertical dotted lines.....
I've marked the monthly MACD buy and sell signals here for the Nasdaq 100. Traders should use the etf QQQ, which mimics the NDX 100 for trading purposes. This etf has a heavy weighting (39.9%) in the FAANG stocks. Facebook, Apple, Amazon, Netflix and Google.
Sentiment data is updated on Thursdays. Bullish signals occurs if the green bars fall below 35 (green line in upper section) or if the red bars exceed -50 (green line in lower section).
Bearish signals occurs if the green bars exceed 55 (red line in upper section) or if the red bars don't cross -20 (red line in the lower section)
Pension Partners provided some additional color via a tweet. They peg the extreme bearish survey posture at 26% bulls, which has occurred only 10% of the time since the survey began in 1987.
The bullish extreme, in their study is when the bullishness exceeds 52%. When I made this particular note the survey had been under 26%, like at 17% which portended very good forward returns. (date of this update 6/5/16. I believe the bullish survey number had been as low as 17%.
This chart is less cluttered than other monthly charts. I've inserted a vertical blue line to mark the tops and have similarly marked the RSI Divergences. While the main theory of the chart list focuses on the MACD sell signals...these RSI divergences are good warnings of trouble to come.
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