With respect to where to re-enter the stock market during (or after) a bear market, lets closely look at a very interesting study of the only two bear markets in the last 26 years. This study attempts to help answer the question: "When is it safe to re-enter the stock market during or after a bear market?" Our choices are: (A) A definitive close above the monthly 20ma. (B) A definitive close above the monthly 40ma. (C) -50% drop from the all time bull market high. {First Bear Market in the Last 26 years} (40ma Exit) [Our first Bear Market chart of the SP500 below encompassed the time from 1999 to 2007, monthly candles, 20ma and 40ma.] 1A: Notice that following a long bull market, the first definitive monthly close below the 40ma was on February 2001 on the SP500 at 1240. 1B: The market continually dropped to a low of 775 on October 2002. 1C: By exiting stocks on the close below the 40ma, a -37.5% drop was averted. (20ma Re-entry) 2A: Now notice your first definitive monthly close above the 20ma was on July 2003 at 985. 2B: From a market re-entry of 985, a bull market ensued to a high of 1575 on October 2007. 2C: From a re-entry at 985 to the Oct 2007 high the SP500 gained +59.89%. 2D: Using the 40ma exit at the start of the next bear market, the 20ma entry strategy for the next bull market would have a gain of +29.94%, in addition to avoiding the heartbreak of the -37.5% bear market drop below your bear market exit point. (40ma Re-entry) 2A: Now notice your first definitive monthly close above the 40ma was on Dec 2003 at 1120. 2B: From a market re-entry of 1120, a bull market ensued to a high of 1575 on October 2007. 2C: From a re-entry at 1120 to the Oct 2007 high the SP500 gained +40.62%. 2D: Using the 40ma exit at the start of the next bear market, the 40ma entry strategy for the next bull market would have a gain of +14.28%, in addition to avoiding the heartbreak of the -37.5% bear market drop below your bear market exit point. (-50% Re-entry) 2A: -50% from the all time bull market high (1550) occurred on October 2002: SP500 at 775. 2B: From a market re-entry of 775, a bull market ensued to a high of 1575 on October 2007. 2C: From a re-entry at 775 to the Oct 2007 high the SP500 gained +103.22%. 2D: Using the 40ma exit at the start of the next bear market, the -50% entry strategy for the next bull market would have a gain of +65.16%, in addition to avoiding the heartbreak of the -37.5% bear market drop below your bear market exit point. [SP500, 1999 to 2007, monthly candles, 20ma and 40ma] --------------------------------------------------------------------------------------------------- {2nd Bear Market in the Last 26 years} (40ma Exit) [Our second Bear Market chart of the SP500 below encompassed the time from 2007 to our current date in 2019, monthly candles, 20ma and 40ma.] 1A: Notice that following a long bull market, the first definitive monthly close below the 40ma was on June 2008 on the SP500 at 1280. 1B: The market continually dropped to a low of 666 on March 2009. 1C: By exiting stocks on the close below the 40ma, a -47.96% drop was averted. (20ma Re-entry) 2A: Now notice your first definitive monthly close above the 20ma was on Nov 2009 at 1100. 2B: From a market re-entry of 1100, a bull market ensued to a high of 2940 on Sept 2018. 2C: From a re-entry at 1100 to the Sept 2018 high the SP500 gained +167.27%. (40ma Re-entry) 2A: Now notice your first definitive monthly close above the 40ma was on Oct 2010 at 1195. 2B: From a market re-entry of 1195, a bull market ensued to a high of 2940 on Sept 2018. 2C: From a re-entry at 1195 to the Sept 2018 high the SP500 gained +146.02%. (-50% Re-entry) 2A: -50% from the all time bull market high (1575) occurred on Nov 2008: SP500 at 788. 2B: From a market re-entry of 788, a bull market ensued to a high of 2940 on Sept 2018. 2C: From a re-entry at 788 to the Sept 2018 high the SP500 gained +273.09%. [SP500, 2007 to present time in 2019, monthly candles, 20ma and 40ma]
%% Looks like theyre buying, early QQQ + related again; SPY gets a better dividend than QQQ.......Both are rising but below 50dma+ 200dma.
Hi Murray, I totally agree, the SP500 has stacked levels of resistance to break through: 50dma, 200dma, and 400dma (equivalent to 20 month moving average). [SP500, 6 months, daily candles, 50ma, 200ma, and 400ma]
Thanks for the great posts you are putting out. The 400ma, what is this? Never heard this one before, seems strange other than it being twice the 200ma. Who uses 400ma? The only MA greater than 200ma I have heard people use is 250ma at times. Is 400ma one institutions use? Does it show up regurlarly as bear bottoms? Cheers.
Thank you. The two most important very long term MA's is the 20 month and 40 month moving average. A monthly candle close below the 40ma indicates a bear market follows. A monthly candle close above the 20ma in a bear market, indicates a bull market follows. Now to your question about the 400 day moving average: The last chart I posted above was a daily candle chart with the 50dma, 200dma, and 400dma. Because most charts won't allow mixing daily candle MA's and monthly candle MA's on the same chart, that means I can't display together, the 50 day moving average, the 200 day moving average, and the 20 month moving average. So I used the 400 day moving average because its the mathematical equivalent to the 20 month moving average.
Gottit! Nicely explained. So a 40monthly MA is 800 days. They are certainly long moving averages which you mention for the typical investor to consider. The 200 day MA is probably the most common for longer term traders, market reactions as this point are quite obvious to spot, 400 & 800 are not so much discussed. What I have been watching this current pullback is what I call "a bunch of averages." Refer to attached chart, when they go below 50% expect either a plunge or bounce at this level. Where we just were recently (15%) is an extremity and expect the bounce which we got. I have used a 20 year chart here so it shows a good example. https://www.barchart.com/stocks/quo...lse&overlay3=$DCOF&axis3=false&isComparison=1 Averages displayed are SP600, SP500, NASDAQ, DOWI
I hope noone trades with those monthly moving averages. They are mostly used in asset allocation as far as I know. This reminded me of this article in PAL blog about limit of TF being buying and hold.
The SP500 is approaching its first level of resistance, the declining 50 day moving average. Interesting Note: The 50dma is really close to a 50% recovery of the September 2018 high (2940) to the December 2018 low (2346) . 2940 (high) minus 2346 (low) = -594 decline (-20% decline from the Sep 2018 high) 594 times .50 = 297 (50%) 297 (50%) + 2346 (low) = 2643 (50% recovery). [SP500, Sept 15, 2018 to Jan 9, 2019, daily candles, 50ma]