The Average Investor's Blog

A software developer view on the markets

S&P 500 pierced the 12 month MA

Posted by The Average Investor on Jul 1, 2010

If you remember, at the close of the last trading month of May, S&P 500 was below it’s 10 month MA (see my previous post S&P 500 in Bear Trend). Back then, I commented that the S&P 500 was still above the slower, 12 month MA. Not anymore. As of the close of June, the S&P 500 is officially below it’s 12 month MA as well.

And to show you how precise the 12 month MA has been – notice that it remained under the price for the entire bull move from 2003 to 2008.

S&P 500 and the 12-month MA

If that’s not sufficient, the Dow Theory experts have declared over the recent month the end of this bull rally. For those of you interested in this old system – Jack Schannep’s interpretation of the Dow Theory is the best around in my opinion. His work is definitely a significant contribution to this 100 year old strategy and it does provides followers with a well-quantified and well-defined investment framework.

To sum it up, I am out of the market. There are just too many red flags:

1. 10 month MA broken for two months now (compare with 2003-2008 rally)
2. 12 month MA broken
3. Dow Theory in sell mode
4. The rally from the March 2009 lows has been huge, in fact unprecedented
5. We don’t talk fundamentals here, but how do you feel about the economy anyways?

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