Market Top or False Alarm

I’m not into calling market tops and I’m not trying to do that with this post. What I am trying to do is to bring some concerning developments to light. 

We all know just how hard it has been for SPX to trade within the 2040-2138 range. For almost two years it has destroyed price action. But what I have seen, and this is somewhat similar to yesterdays post about the 10/50-week moving average crossover, is that there are a lot of similarities unfolding that are similar to the tops we saw in 2000-1 and 2008. 

I’ve used the 400-day moving average in the chart below, which I actually never used, but happened to type it in error, but the results were quite stunning. 

You can see in the chart below how SPX has, over the years, managed to hold the 400-day moving average and often times bounce very convincingly off of it. The times that it did not, it often led to a top in the market. 

The only time that has not been the case was in 2011 and again in 2012. The latter, I’ll just consider an anomaly as it quickly recovered, but during this time was when the Federal Reserve was intervening in the markets directly with the quantitative easing, thereby almost making any attempted sell-off practically impossible. 

But now we have a very extended period of trading below the 400-day moving average over the past year, and to me, it appears as if we could be on the verge of another major top in the market. If that happens, it is actually good from a trading standpoint. Profits can be made just as well in a bad market as they can in a good market. So if that happens, it’ll create plenty of new trading opportunities that has not been around for quite some time. 

The only way I see the market negating this pattern, and I’m fine if it chooses to do so, is by establishing, in a convincing and clear-cut manner, new all-time highs.