SPY Monthly 20 EMA and 20 MA

Ever since chessNwine posted a chart about the MONTHLY 20 ma on the SPY and its relation to market direction I've taken a bigger interest in looking into a little more.

So after he posted it - I noticed the following things:




1) BIG PICTURE - A reversal occurs when both the MONTHLY 20 EMA and the 20 MA change direction (for example, January it is 96.75 and February it is 96.32) and diverge (meaning they pull apart from one another) - one thing I WILL note - this is the biggest divergence we've ever seen between these two averages. What does that mean? I believe it means a BIG move is coming.





2) FIRST INSTANCES - Here both remain positive and do not diverge, thus, trend maintains POSITIVE. There is NO negative change in either of the moving averages despite pullbacks, and both are basically holding tightly to one another.




3) FIRST CHANGES OF DIRECTION - The upward trend comes to an end by the divergence in the 20 ema and 20 ma and a negative turn in both moving averages. Then, the bear market ends by a positive number in both and another divergence.





4) ANOTHER COD - The 20 MA lags more, but when both turn negative and diverge from one another, a reversal occurs. The divergence does not have to be huge between the moving average.





5) WHAT NEXT? - Not ONCE in 20 years have these gone in one direction one month and changed the next (for example January -101.62 February - 100.85 March - 101.49) if they change their direction they have STAYED that way, so far for a minimum of 2 years.







More often than not, I shy away from discussions of technical long term market movements because frankly it's hard to establish patterns when there is, naturally, so little data to sample from.

On daily charts you have a plethora of information and patterns available, backtested hundreds of times across all kinds of markets and stocks - but with ONE chart of the S&P 500 and only 20 years to play with, it is difficult for me to even talk about these things.

However, I AM a technical trader, it is my JOB and PASSION to find these patterns and to capitalize on them. So, what do I think of these?

I think you can use this information to decide if you believe this will continue. Afterall, it takes a whole MONTH for each of these to develop. The moving averages do NOT matter until the close. As of today, (08/15/2010) the 20 MA and 20 EMA remain positive - like I said, not ONCE in 20 years have BOTH of these gone negative to positive or positive to negative within a month. Sometimes the 20 EMA does, but the 20 MA does not follow.

Will these next few months go down and change the pattern from the last 20 years? Or will it maintain the same thing that has been going on? Keep in mind markets CHANGE - as does everything. Those that do not adapt do NOT survive (don't believe me? Watch this: FLOORED) - keep this in mind when you see this, and with what happens in the coming months.