Rainbow Moving Averages

As my hometown wrapped up Gay Pride Week with a delightfully flamboyant parade, I wondered how I might use the powerful symbol, the rainbow, to represent the goings on within the stock market.

I mostly use the SPY as my general market indicator, so I pulled up a daily chart and employed some tricky technical analysis. It was then that I noticed an interesting phenomenon…

I lined up popular MAs according to ROY-G-BIV from fast to slow

MA (5) = Red
MA (10) = Orange
MA (14) = Yellow
MA (20) = Green
MA (50) = Blue
MA (100) = Indigo
MA (200) = Violet

As you can see we’re at RV(lame)OY-G-BI. We are so close to recreating the mighty rainbow.

What does this mean?

Well, the more in line these MAs are from slow-to-fast from bottom-to-top, the more Bullish the market. In a strong Bear market, it would be slow-to-fast from top-to-bottom.

This phenomenon occured at another point this year as we pushed to a new high of the year in early June. We even got so far as having the MA(5) & MA(10) above the MA(200). All signals were go for a continued rally, but the Bears just weren’t having it.

As you can see, the behemoth that is the MA (200) is the only moving average that just won’t cooperate with the Bulls. The hairy Bears just keep holding us down here. If only we could find some unicorns to pull that stubborn MA (200) into place…

Update: An update on how well this moving average formation is coming along can be found here. Check it out.

I have included the following video for your reference on the ROY-G-BIV Phenomenon:

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