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10th April 2023


S & P 500 Index:- 4,105




In my last Overall Market Trend update on 1st February 2023, I turned bullish with the S & P 500 index at 4,043. The 150 day simple moving average had turned slightly upwards, and the index also had broken out of a downward trend channel. These were two strong bullish technical indicators, and the fact that they had occurred in an environment of rising inflation and rising interest rates, normally a big negative for stocks, was even more noteworthy. A market that rises in the face of bad news is sending investors a clear signal that it is heading upwards.

Since our last update in February, the 150 day simple moving average did turn slightly downward once again, but the index did not revisit the previous low, so the new upward trend just about held up, after this test by the bears. The 150 day has since turned upwards, so that removes any doubt about the technical indicators which are unequivocally bullish.

You will see that on the chart for the S & P 500 index (click the link above), the 150 day simple moving average is described as '30 Day MA'. That is because this chart is a weekly chart. Therefore the 30 week moving average is the equivalent version of the 150 day moving average on a daily chart, there being 5 trading days in each week.

I am sometimes asked why I don't use the 200 day moving average - an indicator that is commonly referred to by technical analysts. I find that the 150 day gives slightly more prominence to more recent moves in the market, and so can be a step ahead of the 200 day moving average. Also, using the 150 day simple moving average, avoids having to refer to the 'exponential' moving average - the latter being a weighed moving average which ascribes a higher weighting to the move recent movement in the market.

Other websites that contain information about technical analysis, get bogged down in too much detail, using exponential moving averages and a whole host of other technical indicators, in my opinion. You read on to the end of the article, looking for a conclusion, and there is none! The writer gives no prediction, only saying if this happens, then it is bullish, or if that happens, it is bearish. Not much use, when one is trying to decide what to do now!

So while I am a fan of technical analysis, please beware - there is a lot of rubbish out there describing itself as technical analysis, and on reading it, you end up more confused that you were at the start! Why do I say that with such confidence? Having over 30 years experience of trying to predict the direction of markets gives one a pretty good idea of what usually works, and what doesn't!

Why is the US stock market recovering, in the face of rising inflation and rising interest rates - two things that are normally very negative for stocks? It looks to me that investors are beginning to anticipate that the peak in interest rates (and inflation) will come soon. Always remember that stocks are priced on anticipation, not on fact. What is happening today is irrelevant, that was priced in some time ago. It is what investors believe the future will hold, ie 'anticipation', that is important.

However, those expectations that we will soon reach the peak level in interest rates, and inflation, could be misguided. But I am encouraged by the number of bearish commentators that are evident at the current time. In the business of predicting the market direction, I have found that I was never right when everyone agreed with me. It was only on the occasions when half the 'investment crowd' were bullish and the other half were bearish, that I normally guessed correctly. The market is managing to rise, if only slightly, in the face of that negativity. The 'path of least resistance' is therefore upward.

Of course, there are random factors that can upset the apple-cart. Who predicted Putin's invasion of Ukraine in February 2022? Absolutely nobody! So nothing works every time in predicting the direction of the stock market, and that must always be taken into account in managing the level of risk that you are prepared to tolerate.

But if you were thinking about investing in some stocks now - then I would certainly not put you off, as the technical indicators are positive. And what about the fundamentals? The S & P 500 is still 10% below its all time high, and last year's tumble has shaken a lot of the overvalued froth off many stocks, especially in the technology sector, so that has certainly reduced the risk factor.

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