Over the past two decades, a reliable way to determine the overall direction of the market has been whether the S&P 500 is above or below the 20-month moving average. Of particular interest right now is what happens when the index falls below the 20-month MA, as it has recently done.
In 2003 and 2010 the index briefly touched the average early in the rebound, but pretty much stayed above it.
In 2011, the index dropped below the average to a more significant extent, rebounded on a retest, but had enough momentum to continue on the upside.
Earlier this year, the index dropped significantly below the average, and has returned for a retest.
So what's the score going to be a few months from now? Will it end up as 2 for 4, with two retests that ended up with big drops and two that ended up with strong gains? Or will it be 3 for 4 followed by strong drops? Next week, the Fed meets again and may announce the second increase in interest rates. Or they could decide to hold off and wait for a clearer picture of the economy. Either way, this retest pattern is likely to show its true intent.
This is like watching an old black-and-white movie with the damsel strapped to the tracks and the steam locomotive coming around the bend. Will she be rescued in time?
To find out more, please click on the following link: www.markettamer.com/seasonal
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