Monday afternoon, the financial media needed to smoke a cigarette. After drooling all day, they finally got their chance to trot out a “big market statistic” and report that the Dow broke its 501-day streak of closing above its 200-day moving average.
OMG, OMG! The bear market is here! Sell! Sell!
Um, no.
While it is true that the Dow Jones Industrial Average closed below its average, please, someone, prove to me that it was a sell signal. And by sell signal, I mean that when we look back a few months from now we will clearly see that the market crossed the event horizon. Can’t see it now but maybe later.
Quoting the venerable market technician Col. Sherman T. Potter, “horse hockey!”
I cannot say with certainty that selling it all now is not the right move because tomorrow can bring a real sell signal of some kind. But with the evidence we now have on the table, the odds of that look to be pretty tiny.
Let’s take a little romp around the charts, shall we?
Here’s the Dow with the 50- and 200-day averages. Yes, there is the close below the 200-day. Financial reporters did not give us fake news.
However, take a look at chart supports. The major support is far from broken. I’d say we’ve got plenty of cushion before trotting out the B-word.
Now, take a look at the S&P 500. Forget the 200-day average. This index barely dipped below the 50-day average. And look the short-term uptrend line from the 2018 low. Intact.
The Nasdaq is even stronger.
And the small-cap Russell 2000, a touch better than that and is only three days removed from its all-time high. This index is still my tell on the market as I wrote in my last piece here.
Now take a look at the Dow with exponential averages. No breakdown at all.
If the market cannot bounce this week – I don’t want to nail it down to a day or two thanks to the uncertainty that Twitter can bring – then I will consider a change of tune about the market. And while a moving average death cross has turned into another media circus item, if and when that happens I really will take notice.
