Tracking Stocks Above the 200 Day Moving Average

• Posted by Greg Harmon
• on June 13th, 2011

Revised and updated from an original post June 7th. There are plenty of bullish traders putting some money behind a bottom at the current 127.70 level in the S&P 500 SPDRs (ticker: $SPY) or 1265 on the e-mini S&P 500 Futures (ticker: $ES_F). They may be right and I lean that way as well, but will wait for price action to prove it has bottomed before tossing big money into the ring. One of the indicators that gives pause is the Percent of S&P 500 Stocks Trading Above Their 200 Day Moving Averages. Below is a weekly chart of this indicator with the S&P 500 (ticker: $SPX) overlaid. First notice that the SPX tracks the pivots of the indicator very well. When the indicator falls so does the SPX and when it starts to rise the SPX rises. The magnitude of the move is not

always similar but the pivots are like magic. Next notice that there are 3 distinct areas on this chart, the relatively stable area from 2004 to 2007, the area of the Financial crisis from 2007 to late 2009, and then from late 2009 to the present. In the quiet uptrending market area the indicator ranged from 45 – 85. The Financial crisis blew that up making extreme lows under 5 and then extreme highs at 95. The last area is getting back toward the normal range. The indicator did break below 45 but has not spent any significant time there, and the tops are getting progressively lower. Finally note that the indicator has always bottomed shortly after crossing the SPX in every instance outside of the Financial crisis. It may not get to the SPX but if it does it stops within a couple of weeks.

What does this suggest? First throw out the area of the Financial crisis. Second, since the indicator has not bottomed and is still moving lower it suggests more downside (the indicator for the current week is in the blue circle). Third it has crossed the SPX now so it is time top start looking for a turn. logical. Loading up on longs before the indicator stops falling and turns higher might get you a few extra shekels but this chart suggest that may be a few more weeks before things turn higher. Until then I will continue to build a list of names for the bounce.

(As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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