U.S. stock market – long-term indicators favor bulls

By Prieur du Plessis, on August 6th, 2012 posted in: Investment, Stocks Leave your comment

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I published a post yesterday on the short-term technical outlook of the U.S. benchmark S&P 500 Index, referring to conflicting indicators but stating that the rally could have more legs. When the message of the short-term charts is murky, it is often useful also to consult long-term indicators to provide some guidance.

Let’s consider, by means of example, monthly data for the S&P 500. A simple 12-month rate of change, or ROC, indicator seems to pick up the major turning points quite well. Let me say straightaway that monthly indicators are of little help when it comes to market timing, but they do come in handy for defining the primary trend. The ROC line below zero depicted bear trends quite clearly, as in 1990 (not shown), 1994, 2000 to 2003, and from 2007 to March 2009. Right now, the ROC line is “safely” in positive territory after threatening to breach the zero line in June.

The combination of a series of higher lows (i.e. rising bottoms) and positive longer-term momentum probably gives the bulls the benefit of the doubt, but needless to say I will be watching this space quite closely.

Source: StockCharts.com

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