$SPY Trend Update; Be Aware Of Weekly, Monthly Moving Averages

The market is falling today on an unexpected jump in jobless claims and disappointing regional manufacturing (Stocks drop as jobless claims rise unexpectedly - Associated Press). I'm thinking technical vulnerabilities (head and shoulders) are at stake here as well. There are ways to protect yourself against technical risk. You can hedge long exposure with put options or offset with securities or ETFs that move inversely with the risk asset, which changes as well. Treasury Bonds (TLT), the U.S. Dollar (UUP) and Volatility (VXX) have moved inversely with the S&P (SPY) since the April peak. The Dollar didn't gain much but it still preserved capital. I first did technical analysis on $SPY using weekly and monthly charts with trends and moving averages and then compared UUP, TLT and VXX performance with SPY since April (backward looking).

You can see the obvious uptrend from the March 2009 low. If the trend gets taken out it would change the market trend structurally, whether that means extreme sideways action or lower levels. It would also violate a symmetrical triangle (SPY is trading in a sideways triangle trying to figure out what it wants to do). Now check out the weekly and monthly moving averages. SPY's 20 week moving average was leaning on the 50 week moving average as of today's close. If the 20WMA crosses the 50WMA that would unleash overhead pressure (in my opinion). It's essentially the 140 day moving average over the 250 day moving average measured by weekly moves. The "death cross", as you already know, is when the 50 day moving average crosses below the 200 day moving average and that's still in tact. The 20/50WMA zooms out a bit. The MACD, a momentum indicator, is also at an inflection point right below the midline.

I guess if you're a bull and looking back at the last 10 years, you could say we're following the same path as 2003 and 2004, where the 20 week crossed the 50 week to the upside in 2003 but failed a bear cross during the chop fest in 2004. The question is, should we still follow the 2003-2004 template or has the market and economy changed structurally. One could perhaps occur without the other. See what hedge fund manager Kyle Bass, economist David Rosenberg and analyst Gregor Macdonald think about the current recession (or depression) and structures.

Lastly, check out the monthly chart. What I'm looking at here is the 200 month moving average. That covers almost 17 years. SPY broke the 200MMA in October/2008 during the financial crisis and the result was a 32 point move in SPY to the downside, from 99 to 67. Just showing you history folks, it doesn't always repeat. SPY also tested the 50 Month Moving Average recently and failed. What wouldn't be good is a 20MMA/50MMA downside cross. Manage technical risk...

$SPY (SPDRs S&P 500 ETF) Weekly Chart
Blue Line: 50 Week Moving Average, Yellow Line: 20 Week Moving Average

Courtesy of FreeStockCharts.com

$SPY (SPDRs) S&P 500 Monthly Chart
Red Line: 200 Month Moving Average, Blue  Line: 50 Month Moving Average

Courtesy of FreeStockCharts.com