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From John Murphy
MOVING AVERAGE DIRECTION IS IMPORTANT... A lot of attention is being paid to the market's test of its 200-day (40-week) moving average. As important as that is, the "direction" of the moving line is just as important. To demonstate that, Chart 8 applies the 40-week moving average (red line) to the S&P 500 over the past decade. During the 2000-2002 bear market, for example, the S&P 500 rose briefly above its falling 40-week average (red arrow) before turning back down. It wasn't until the average itself turned up in the spring of 2003 that a bull market began. From 2003 to 2007, the S&P fell below its rising 40-week line four times (green arrows) before resuming its uptrend. It wasn't until the average turned down in early 2008 that a bear market began. That tells us that the direction of the 40-week average is an important determinant of the market's main trend. Chart 9 shows the S&P 500 testing a falling 40-week average (red line). For a major uptrend to exist, two things have to happen. First, the S&P 500 needs a Friday close over the red line. The second is that the red line itself has to turn up. That's where price channels can help.
Chart 8
Chart 9
40-WEEK PRICE CHANNEL ... When a 40-week moving average is calculated at the end of each week, two things happen. A new closing price (Friday's) is added and and an old number (40 weeks back) is dropped. In order for the 40-week average to rise, the new closing number must be higher than the old price 40 weeks ago. A 40-week price channel tells us how close (or far) the S&P must rise for that to happen as shown in Chart 10. Generally speaking, the 40-week average will start to drop (red arrow) when the S&P 500 hits a 40-week low (black circle). That's what happened at the start of 2008 when the S&P hit the lower 40-week channel and a bear market ensued. For the 40-week line to turn up at present, the S&P 500 must reach its upper 40-week channel line which currently sits at 1313 (last summer's high). That doesn't seem likely in the near future. Over the next few months, however, the upper channel will start to drop sharply as the higher numbers from last summer are eliminated from the moving average. Until that happens, the 40-week moving average will continue dropping. And a new bull market is unlikely as long as that is the case.
Chart 10 | 
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发表于 2009-5-25 10:48 PM
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发表于 2009-5-25 10:49 PM
