A Look At the Monthly Chart of the S&P 500

I noticed something interesting yesterday while going through my charts, and that was the monthly chart of the S&P 500 ($SPX). When I do my Technical Market Outlook and discuss momentum I show the daily chart of the S&P along with the Relative Price Index and MACD indicators. These are two well-known and commonly used measures of momentum in technical analysis. Today let’s take a look at what they are showing on the monthly chart.

What I noticed first was the degree of separation between two lines of the MACD oscillator. The MACD indicator is made up of the difference between two Exponential Moving Averages as well as the average of the MACD line itself which creates the ‘signal’ line (you can read more about the MACD indicator here). Many traders have noticed the crossover that’s taken place in the MACD on the monthly chart and how this resembles what took place in 2007. What’s interesting to note today is how separated the fast and slow lines have become, which is displayed in the histogram portion of the indicator in the chart below. In fact, they haven’t been this far apart since ’07, ’00, and ’98, as marked by the vertical dotted red lines. The whipsaw of the MACD in 2011 is often used to discredit this momentum tool’s accuracy, and rightfully so. But in 2011 we did not see the histogram (which measures the distance between the two MA’s) decline by this amount.

Turning the focus to the Relative Strength Index (RSI), which is my personal favorite measure of momentum, the picture does not look as bearish. At least not yet. We often look for divergences in the RSI but I’ve found that looking for breaks of support after the RSI has been above 70 has also been an interesting tool to use. We remain above the prior lows of around 65 in the RSI indicator. The fact that the RSI has stayed elevated is a positive long-term sign, it’s when things begin to breakdown that traders often begin to grow concerned.

spx monthly

So when it comes to momentum on the monthly chart of the S&P 500, it seems we have a house divided. The MACD oscillator is showing signs that things are slowing down in the U.S. equity market as price is unable to keep its momentum rising. But the RSI has been able to remain above its support level. All while price itself has been able to stay above its own 20-month Moving Average which has helped defined the current (and prior) up trend. While the focus is often on what’s taking place on a daily basis I like to keep track of what’s also occurring on the big picture as well – and currently things look mixed at best.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.
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  • Sam Richardson

    Hi Andrew,

    This is the first time I have come across someone else using a long-term MACD as I do. In my own research I have found this to be one of the best coincidental indicators of a positive or negative move in an index or stock. That being said, I did not put my money where my mouth was when seeing the above last year (and even earlier on the TSX in Canada, where I am)!! Frustrating to not have the courage in my convictions. Next time, I have vow to take action. Did you?

    What are your thoughts on this as a buy indicator?

    Thanks, Sam

    • athrasher

      Thanks for the message Sam. I don’t use any single tool or indicator when making buy and sell decisions but this type of data piece has helped keep me fairly conservative over the last 12 months… as you can probably tale from my posts and tweets over the last year if you look back.

      Long-term look back periods like this MACD has can help define a long-term trend but I don’t find it AS useful for entries.