In a previous post I talked about the alignment of moving averages on the SPY. I color-coded the moving averages according the colors of the rainbow for visual clarity and order. MA (5) = Red MA (10) = Orange MA (14) = Yellow MA (20) = Green MA (50) = Blue MA (100) = Indigo MA (200) = Violet
Rainbow Moving Average Update
When we took a look at these moving averages back then, the alignment was R(V)OY-G-BI. The violet (MA 200) was the only moving average that was out of order. Well, today this still remains the case. We have made some progress in the right direction, however. The current order stands as ROY-G-(V)BI with the MAs 50 & 100 standing as the only remaining MAs that have yet to cross above the MA 200. The real sign of a long-term bull market will be that final crossing-over of the MA 100 over the MA 200.
What’s the Significance?
Here is a stock chart from March-May of 2003. Looks kind of familiar doesn’t it? This was what the market looked like shortly after it bottomed out after the dot com bubble burst. From this point forward, there was no turning back. The MA 50 pulled above the 200, followed by the MA 100, and they didn’t roll over again until early 2008.
A Down Week for the SPY Doesn’t Mean It’s Over
As I stated in my last post, I believe the market looks like it’s setting up for a down move this week. I don’t think this will significantly impact the current uptrend. You can see in the 2003 chart that on May 19th, there was a huge down day. This was followed by two more down days and an overall down week. This didn’t really slow the upward momentum though. I still expect to see Thursday’s gap closed and a possible test of resistance around 96 on the SPY. I also expect that with the market’s current momentum, the MA 50 has a chance to pull above the MA 200 next week, depending on how deep and extended the down move is. What about you? Where do you think we’re headed tomorrow? Next Week? This year? Do you agree with my analysis or think it’s complete garbage? Let me know by leaving a comment or by hitting me up on Twitter.
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{ 2 comments… read them below or add one }
could you explain, the meaning of ma20,ma50,ma100 looking at charts.
MA stands for moving average. A moving average is a line on a chart with a value that equals the average of the past X trading periods. For example, on a 5 minute chart, a MA20 is a line that averages the past 20 5-minute periods (candles or lines). A MA50 averages the past 50 candles, and an MA100 averages the last hundred candles. The higher the number, the “slower” the indicator is considered. They are used by some as points of support or resistance, but I mostly use them as basic trade-direction guidance.