By Rob Isbitts via Iris.xyz

Depending on how and when you learned about investing, you have one of the following opinions about a common feature of stock price analysis known as “moving averages”:

  1. You find them as valuable as ever
  2. You believe they have lost some luster, since technical analysis is so much more popular than it was years ago
  3. You have no use for them, or any other aspect of charting or chartists

So, when I point out in the above chart that 3 of the S&P 500’s major moving averages (50-day, 100-day and 200-day) are all sitting around the same place (near the 2710-2715 area), and the shorter-term 20-day moving average just started moving lower, you have what some people would call a “cluster” problem.

And while I am often bearish on the stock market these days, I am more concerned with looking for strong signals as to the market’s direction.  After all, the many ups and downs of the past 12 months have left the S&P 500 about where it was at this time last year.  So any clues as to what the major “decision points” are might be are helpful.  And as I near my 40th year of charting stocks and stock markets, I am at least going to keep an eye on this situation in the coming days and weeks.

False alarms are always possible, and we are talking about charts of daily prices, so there is lots of “noise” in charts like this.  But it is not often you see moving averages clustered in this way, and after a wild 5 months that have seen the S&P 500 drop about 20% (including 15% in 3 weeks in December), then rally nearly 20% off that Christmas Eve bottom, we have to be ready for everything.

And while I know you might have reached this point of the article and thought “this is all short-term stuff, so what,” do understand that just as every flower starts as a seed, many sustained major market moves in both directions start with a subtle change in the technical picture, not simply some big news on the economy or from geopolitics.  It’s a great time to have a wide range of vision as you seek to protect and grow your wealth.

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