The 200 Day Moving Average Has Many Uses

• Posted by Greg Harmon
• on August 31st, 2011

One of these uses is to take a broad measure of the market from a basic statistical perspective. Instead of looking at the price of the S&P 500 in relation to its 200 day Simple Moving Average (SMA), the chart below counts the number of stocks within the S&P 500 that are above their 200 day SMA and reports the percentage through time. The backdrop to this is the S&P 500 itself. I have written about this indicator previously

and you can read the generic story below, but what is important about this indicator right now is that it is not confirming a move higher in the S&P 500, yet. Yes I understand that the market is up 8% off the bottom, but I repeat, it is not confirming a move higher. The indicator has fallen quite a bit, near the lows set from 2008 into 2009, but the story is in the two gray boxes following the last two downturns in the market. It took until the indicator was back above the S&P 500 each time before the S&P 500 started its 18 month and then 8 month marches higher. It could be wrong this time. But doing the math makes me wonder how long it can be wrong before statistically it must be right. Flipping it on its head, it may be late to confirm but the number of stocks trading below their 200 day SMA cannot stay at this low level if the market it going to rise. Keep an eye on this indicator.

Tracking Stocks Above the 200 Day Moving Average

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

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus