Long Term Optimism or Secular Bearism?

As the markets play around in the summer sun with Tuesday likely to see some modest recovery to yesterday's losses I took the opportunity to look at a couple of 30-year charts for S&P and Nasdaq.

I wanted to eliminate noise so tracked only 20-week and 40-week EMAs, monitoring where crossovers occurred. In summary, the most recent 15 years have been relatively stable compared to the more whipsaw nature of the previous 15. Are we entering a new whipsaw period?

Of interest too was the deep oversold nature of the recent decline - a decline which took the 20-week EMA outside of the lower Bollinger Band. Past occurrences when the EMA exceeded the (upper) Bollinger band where the pre-1987 crash and the pre-2007 crash. In each case the market headed south in a hurry. At this point, a counter rally of similar strength is unlikely but there is little reason for shorts to be aggressive here - even if buying is not necessarily the preferred choice.

The Nasdaq didn't gain during its recent cyclical bull leg as the S&P did. However, its 20-week EMA dipped outside of the lower Bollinger Band on its March low as for the S&P. It's closer to a bullish crossover than the S&P but will it bring reward?

The eventual outcome will probably be quite scrappy and not very tradable but such is the nature of a recovery. Certainly the worst looks behind it but a period of modest losses to see out the secular bear likely has greater merit here; perhaps an inverse as to what happened during the eighties and early nineties???

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[1] Register at Zignals.
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[5] Enter as many calls as you like up until the end of June; these can be long or short signals
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Good luck!

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, stock charts, watchlist, multi-currency portfolio manager and strategy builder website. Forex data available too.

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