ChartWatchers

WHERE ARE WE IN THE CYCLE?

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Given the volatility of the capital markets these past two weeks, we think it instructive to step back and take a longer-term viewpoint of the stock market to discern where we may be in the cycle. In doing so, we find the S&P 500 large caps - the strongest relative US average given its international exposure - trading well above its longer-term trendline as well as its 80-week moving average. In the past, this moving average has provided "fulcrum points" between bearish corrections in a bull market and outright bear markets. In the present case, this moving average was successfully tested seven trading sessions prior at 1378, and closed this week out at 1479... a full 100 points above it. Perhaps this simply indicates that a normal -10% correction within a bull market has occurred, and prices have now resumed their upward trend.



That said, the credit contagion seems to be contained for time being; however, the character of the rally hasn't been "strong enough" for us to believe that a "lift-off bottom" is in place. Thus, we are now in the process of layering on short positions for the seasonal September-November swoon back into the 80-week moving average is forthcoming. And if broken - then we would expect to see a bear market decline of -20% and perhaps even more.

As they say: Timing everything.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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