Today's Notes 6/4/2009

Much has been said and written this week at the event of the crossing of the 200 day moving average, a traditional  demarcation of bull and bear territory.  I have not had a lot of time to do research, but I did put my eyes to the charts last night and this morning to learn more about this event. and this is what I saw.

Here is where we are on several indices

Every index excepting the Dow is now up and over the 200 DMA, with the Nasdaq related indices leading the way.  We are waiting for the Dow to confirm.  So we are there now.. correct?  We are in bull territory and we are in a bull market.  Right?  Not quite so fast, there are two types of 200 DMA crossings and we need to know which one we are experiencing.

Let's look at the first type of crossing:   The Bull Crossing.  These crosses are very distinct they cross and they never look back.  In April of 2003 the SPX made such a crossing.  After 3 days it was up and over and no tail ever touched it again for  over a year. Here is a picture of that crossing:

Here's another crossing in January of 1991:

This time the 200 DMA is more horizontal, but clearly a strong bull market had taken over and there was no turning back.  On this particular crossing the 200 DMA was not touched for another 10 months.  There was another similar crossing in January 1970,  February 1975,  April 1978, August 1982 (14 months without re-touching),  June 1988, all on the SPX.  Remember I am just eyeballing this data for now.. It is worth a spreadsheet study, but time does not allow that.  That being said, I may have missed some crossings.  A crossing for this study has to have the 200 DMA in a negative slope. We have crossed this line many times, but to find crossings, or to even find a negative sloping 200DMA is a little more select.

Let's look at the second type of crossing the bear crossing.  This is when the price crosses the 200 DMA  but fails to stay .  Here are the dates when this has happened on the SPX.: Oct 1973 (16 days),  July 1977 (3 days), Jan 2002 (1 day), March 2002 (13 days)

The concerning part about a bear crossing is every single failure began a run to a new bear low and that would put us below 666!

Let's look at a recent failure and see how the other indices looked at the time..

Noticed that on these crossing there is not enough positive price action to turn the 200 DMA up.  Here is a shot on how this bear crossing played out:

The scary part of this picture, just doing a quick study this morning is that the timing of the low I labeled as March 09, which is really Sept 2001, comes close in timing, about 12 months from the 200 DMA crossing to the bear side.  So there is time alignment here between the two date segments.  You can see that this failure lead to new lows. 

I need more time to study this crossing. I send this out to begin the discussion.  Odds favor a "Bull Type" crossing here, but we need to be aware of the failure issue too.  The 200 DMA is a very strong psychological line worthy of respect and careful study.

... to be continued

Happy Trading

-rlt