Chart of the Week: S&P 500
Hey good morning everybody. Happy Wednesday. It’s time for our chart of the week, and this week we’re gonna do something a little bit different. We’re not focusing on any particular stock name in general. Rather, we’re going to be taking a look at the end-of-the month S&P 500.
Of course, Monday was the last trading day of March. It was also the last day of the quarter. So I wanted to show this right here. And it does look like it’s in trouble here. It’s gonna need a good month of April to dig itself out of a hole. But let’s take a look at this chart and see what we’re seeing.
So here’s the monthly chart of the S&P 500. This goes all the way back to 2010 – 2009 actually. This is a monthly chart, you can see the monthly bars.
And clearly the trend is what? The trend is up. It’s bullish. Over a long period of time, we know that that’s the case with the stock market. But there are short periods of time when that trend – uptrend – turns into a downtrend. And we’ve seen that happen right here. We’ve seen it happen right here. Even to a lesser extent right over here.
This is being caused by weakness in the stock market, which is reflected in the MACD. I’ve noticed for a lot of years that when we get crossovers in the MACD, that tends to lead to bearish movements and possibly even a bear market. And that’s what happened here in 2022 once we got that bearish crossover here. We ended up into a long, protracted bear market for better than a year.
And you can see that once this crossed over at the beginning of 2022 – it was March/April 2022 – the markets had come down a lot prior to that. But it came down a lot more after that crossover happened.
We had smaller crossovers here in 2020, and we bounced right back up. Remember of course this was the COVID blows. And then in 2018 as well, too, towards the end of the year. Lots of tariff talk as well.
So what do we have currently right now? We have the month of March finished red. We did have the month of February also finish weak with a DOG. And now we’re below some key moving averages here. And relative strength is coming down.
Notice also that March was one of the highest volume months in about the last four years. In fact, we hadn’t had this kind of volume since way back in 2020 – so almost four years – one, two, three, four – five years since we had that kind of heavy turnover.
There’s a lot of people out there saying that the volume levels are low. I disagree. As you can see the S&P 500 – again, largest volume that we’ve had since the summer of 2020.
Other indicators: Again, here I want to show you very isolated on the MACD over here and what’s gonna happen. So, if we have a poor month of April, which means barely up or possibly negative, we’re gonna get a crossover here by the end of the month of April – by April 30.
And what does that mean? That simply means it’s a red flag alert that if we get another down month, that would be in May, that would confirm that the market is in a bear condition. We are in a bear market.
Now, it doesn’t have to last as long as it did in 2022. It could last for a couple of months like it did here in 2020. It could last longer than that. But you just have to be aware that those conditions exist, and there is a different way of playing the stock market in a bear market than in a bull market. You should all be aware of that. I have written an ebook all about it. I have all the conditions and all the rules of engagement in a bear market as well.
So let’s take a look at some of these other indicators over here.
And you can see on-balance volume has been strong – still strong – looks like it’s rolling over here.
Chaikin money flow was strong for a good part of 2024. It was rising up then, and ever since the election, we’ve just been making lower highs, lower lows. This tells you what? This tells you that institutional money has been leaving the stock market in a large way. We’re not down to zero – heading towards that level. It could possibly be that we’re at zero by the time April or May comes around if the market continues to stay weak.
We do have earnings season coming up soon, so that could be the equalizer for this downtrend over here. So we could balance that out if the earnings come in pretty good. I know a lot of earnings estimates have been cut quite significantly for the first quarter earnings period. So perhaps we see some surprises.
But by and large, if we get another red bar over here – where’s the target? Well, you have to go back and look at the last couple of downtrends when the MACD crossed zero – the black line underneath the red line – over here, over here, and over here.
And what I’m looking at here is the 50-month moving average. That’s right here. That currently comes in at around 4,630. 4,630 from where we’re at right now – that would be 1,000 points down, roughly, from where we are right now. And that would be an awful move down.
But you know, we’re not here to judge things. We’re just here to analyze things, and see where it could possibly happen.
Now how long would a move down to 4,630 take? Probably it would take months – probably 6, 7, 8 months to get down there. Not gonna be out there in a couple of, in 2 or 3 months. Look at how long it took to get from the 4,800 level all the way down to 3,700. This dropped 900 points.
Why am I looking at this 50-month moving average? Just because it’s been an area of support when the market got weak and we came into a bear market. It’s been a target area.
Further, we are well separated from this 50-month moving average. And it’s fine when you’re in a strong economy and a bull market to be far away from that. But as we know, moving averages are mean-reverting instruments. We have to look at moving averages in isolation saying that prices are gonna move back to those moving averages. Moving averages act like a magnet.
So if that’s the case, it’s continually moving up but at a slower pace here. We’re gonna see this 50-month moving average act as a magnet and pull the stock market right back down to it, much like it did here in 2020. So just be aware of that.
I think there’s going to be some good trading opportunities between now and … Maybe we’re still in a bull market. I don’t know. Whatever the next phase of the market is, there’s gonna be some great opportunities to trade this thing.
If you have any questions on anything, let me know. Thanks for watching everyone.
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