After reading countless postings on numerous blogs (don’t worry, Tim – SoH is still #1 in my book) it’s abundantly clear there’s no shortage of opinions out there. And we all know what they say about opinions, right? Some of these bear case scenarios are well-articulated and thought-provoking. Hell, some of them might even end up being correct too! For example, we can all provide plenty of reasons why China is going to be the new economic powerhouse. But it’s just as easy to explain why over-investment in China will hinder their economy. And the list goes on. We can theorize and debate, but ultimately it’s the charts that tell us how right, or wrong, we are.
Below I have included a chart of the Wilshire 5000, a very broad measure of stocks. You will see one window has the weekly bar charts for the past 11 years. The other window has the 50, 89, 150 and 200 day exponential moving averages. Normally, I add the standard deviation of the moving average as a buffer, but I will forego this for now. If we’re in a bull market, the chart should look like this: 50 day EMA on top, followed by 89 day EMA, then 150 and finally 200. The reverse is true in a bear market. As these averages transition from bull to bear mode, you should also be seeing a change in the chart pattern (ie: head & shoulders tops, broken trendlines). I marked bull & bear based on the golden cross or black cross (50 EMA crossing the 200 EMA). Simple, simple stuff.
The big patterns (which no one can manipulate), the multi-year trendlines and the moving averages are all telling us the same story: we’re in cyclical bull mode. I’m not Pollyannaish enough to tell you we side-stepped the crisis and from here on out everything’s “coming up Milhouse”. I’m all for speculating as to what the next macro-catastrophe will be, but I’m also interested in keeping my head long enough to trade it.
That’s all for now. Happy New Year.
With love (the kind you pay for),