The market action of the S&P 500 really supported some of my recent comments. One point in particular that I would like to revisit is the significance of the 50-week simple moving average. This moving average has provided significant support for the upward trending of the S&P 500 for the past few years. We have not had a penetration of more than three percent of this line since 2003, until August 16 of this year. Of course, that penetration was only intra-day.
We can see from this chart that the recent downward movement penetrated this trend-line during the week ending November 9. This past week the S&P 500 rallied briefly above the 50-week moving average, but failed to finish the week above it. This is not necessarily an ominous sign, but it does suggest that a certain amount of weakness remains in the market. Further evidence of this weakness can be found by looking at a shorter-term trend-line on the daily chart.
You can see from this chart the relationship of the S&P 500 to its 10-day simple moving average. The low was set on Monday, and you can see that things had gotten very oversold relative to this moving average. The rally on Tuesday was very strong. It was a 2% increase over the previous day's close. Nevertheless, that did not get us back to the ten-day moving average. We gapped up above this resistance on Wednesday, but were unable to close above it. This is also consistent with my belief that a fair amount of weakness remains in this market.
I will say that the strength of the upward move on Tuesday makes me suspect that we will see a second test on the 10-day moving average before heading lower. That said, I remain of the opinion that the S&P 500 has some additional downward movement ahead of it. This could easily take us down to test the 1400 level before resuming our longer-term bull market.
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