Triple Top for Stocks? … Not Yet.

Looking at an interesting internal trend indicator of the S&P 500 you can see that although the overall market appears dangerously nearing a topping formation, the bear trend has a bit more development yet to go before reaching near certainty.

The rolling 30 day percent change of the 200 day moving average shows the short term (roughly monthly) trend change of the S&P 500’s 200 day moving average and easily highlights flattening, deceleration and decline of that measure.

It’s extremely unusual for the S&P 500’s 200 day moving average to decline for an extended period during Bull an expansion.

A declining trend that sees the 200 day moving average drop below its value set just 30 days prior is a nearly unequivocal indicator of a market top while dropping more than 0.30% holds past historical certainty.

How far are we from the point of near top certainty?

Currently, this internal trend indicator is 0.65 (i.e. the 200 day moving average is still .65% above its level of just 30 days ago) and at its current trend could take another couple of weeks to confirm or discount a top in the S&P 500.

The Almost Daily 2¢ - Grim Toppings

Although I don’t usually comment directly on the stock market or stock indexes and generally limit observations of individual stocks to those that are related to housing and real estate, I thought I might share some basic analysis that I have worked up concerning a pretty grim looking topping pattern now present in the S&P 500 index.

Study the following image (click for very large and clear version) of the S&P 500 index from 1995 to today then read below for the technical blow by blow.


THEN (1998 – 2000 Topping)

• A. October 1998 – S&P 500 gives early warning sign by crossing its 400 day simple moving average (SMA). Notice also that the 50 day SMA breached the 200 day SMA.
• B. October 1999 – S&P 500 gives a second signal by crossing its 200 day SMA after a solid twelve month expansion. 50 day SMA touches the 200 day SMA.
• C. Three prominent but decelerating peaks set up the top.
• D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
• E. 50 day SMA heads down fast and crosses the 200 day SMA.
• F. 50 day SMA crosses 400 day SMA.
• G. 200 day SMA crosses 400 day SMA.

NOW (Today’s Topping?)

• A. June 2006 – S&P 500 gives early warning sign by crossing its 400 day SMA. Notice also that the 50 day SMA breached the 200 day SMA.
• B. March 2007 – S&P 500 gives a second signal by falling near its 200 day SMA after a solid nine month expansion. 50 day SMA similarly depressed.
• C. Three prominent but decelerating peaks set up the top.
• D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
• E. 50 day SMA heads down fast and crosses the 200 day SMA.
• F. TBD
• G. TBD

Needless to say then next few weeks will be white-knuckle time… Be sure to check back as I will update the data in the coming days and weeks.