Replies to post #8598 on Sector Investing

[ReturntoSender]

Amateur Investors Weekend Stock Market Analysis (6/20/09)

http://www.amateur-investor.net/Weekend_Market_Analysis_June_20_09.htm

The major averages pulled back this week from their recent highs as they had become rather overbought. The Dow has stalled out in the near term at its 200 Day EMA (green line) around 8880. If the Dow continues to pullback next week look for support in the 8250 to 8400 range. The 8400 level is at the 50 Day EMA (blue line) while the 23.6% Retrace from the March low of 6470 to the most recent high of 8878 is at 8310. Meanwhile the 8250 area is where the Dow held support at May (black line).



The Nasdaq remains well above its 200 Day EMA (green line) and if it continues to go through a pullback look for support in the 1740 to 1750 range. The 1750 level is at the 200 Day EMA while the 1740 area is where its 50 Day EMA (blue line) and 23.6% Retrace from the March low to the most recent high reside at.



As far as the S&P500 it has stalled out just above its 200 Day EMA (green line) and has begun to pullback as well. If it continues to pullback look for support in the 879 to 896 range. The 896 level is at its 50 Day EMA (blue line) while the 23.6% Retrace from the March low to the most recent high is at 888. Meanwhile the 879 level (black line) is where the S&P 500 held support at May.



Keep I mind the major averages have rallied anywhere from 37% to 48% since the early March lows so a consolidation/pullback period would be normal considering the strength of the prior move upward.

Finally I have received quite a few emails asking about the significance of when the 50 Day Moving Average crosses above the 200 Day Moving Average to the upside and the performance of the market when it occurs. After doing some research here is what I have found going back to the late 1890's involving the Dow.

A table of all of the occurrences going back to the late 1890's is shown below along with the Dow's Performance over the next 1, 3, 6 and 12 Months.

http://www.amateur-investor.net/Weekend_Market_Analysis_June_20_09.htm

Since the late 1890's their have been 69 occurrences when the 50 Day Moving Average has crossed the 200 Day Moving Average to the upside with the last one occurring in early September of 2005. Overall when the 50 Day Moving Average has crossed above the 200 Day Moving Average the Dow hasn't performed that well over the next 1 to 3 Months as shown in table below. However over a longer timeframe (from 6 to 12 Months) the Dow has slightly favored a Positive Return of varying magnitudes although it's certainly not a given the Dow will be higher over a longer period of time.

 
 	     1 Month    3 Month 6 Month  12 Month 
 	   Performance  
 # of Positive 	  39 	 35 	 41 	 43 
 Returns 	 (57%) 	(51%) 	(60%) 	(63%) 
 # of Negative 	  30 	 34 	 27 	 25 
 Returns 	 (43%) 	(49%) 	(40%) 	(37%)