SP500: Santa Betters 200-day Moving Average
Santa Clause delivered some good news to investors on the last trading day before Christmas, with the S&P 500 Index taking out a spread triple top and breaking its 200-day moving average - a key indicator of the primary trend of the stock market. This was the fourth attempt of the Index since October to trade and stay above the 200-day line. It is obviously premature to speculate whether this will be fourth time lucky, especially as stocks rose on very thin volume. The Index a few days ago also breached its 50-day moving average - an intermediate term indicator. However, in order to be entirely bullish the 50-day MA also needs to cross the 200-day MA, and both averages need to be in uptrends.
Source: StockCharts.com
The number of NYSE stocks trading above their respective 50-day moving averages has increased to a respectable 69% from almost 21% in November. In order to be bullish about the secondary trend, one would expect the majority of stocks to be above the 50-day line. As an aside, Consumer Staples (90%), Utilities (85%) and Industrials (70%) are the strongest sectors, with Technology (51%) and Energy (40%) the weakest. In order to be bullish about the secondary trend, one would expect the majority of stocks to be above the 50-day line.
Source: StockCharts.com
However, for a primary uptrend to manifest itself, most of the index constituents also need to trade above their 200-day averages. This is a slow indicator, and the number at the moment is 50%. This is a big improvement on November's 21% reading, meaning half of the 500 S&P Index constituents are now in uptrends.
Source: StockCharts.com
In addition to the above, the fact the S&P 500 Index (and many other major stock market indices) has formed a higher low in December is positive. After all, higher lows are how a new trends starts. On the downside, breaks below the November lows would confirm a resumption of the downtrends.
Time will tell if Santa has in fact brought good news this time. Happy holidays!
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
Copyright © 2008-2012 Dr Prieur du Plessis
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