Tracking the 10/80 Weekly MA Crossover

UPDATED: Mid day trading on Friday, Jan. 20th.  Scroll down to the bottom of the post (not the comments) for weekly updates.

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ORIGINAL POST

Many of you have become interested in BullTart's 10/80 weekly moving averages and his solid assertion that since the 10 week 'had' crossed below the 80, the equities markets were heading for a major downfall.  His assertion was based on past history of that moving average pair and it was as solid a conclusion as one could ask for.  Much to the chagrin of almost everybody though, that pesky 10 week turned back up and by golly, it crossed back above the 80 week again.  How was BullTart to possibly know that was going to happen?  I mean we hadn't seen a "failure" like this in the past 21 years at least.  Probably much longer, but that's as far back as I can look with the charting service I use.  Yup, the conclusion drawn by our friend BullTart was perfectly logical and very solid indeed.
  

                                    Click here for a live and updated version or better yet, click here for a real good close-up.

Fortunately, several years ago I developed a handy little calculator that can figure out what price is required for all kinds of different things to happen.  It can calculate what price it would take for a MACD to turn lower or higher, for a histogram to turn north or south, for any type of moving average pair to cross each other in either direction, etc.  It's at interesting times like this when that calculator is worth its weight in fresh lobster.  For example, as of tonight (Sunday, Dec. 11th, 2011) I can report with 100% certainty that in order for the 10 week MA to cross below the 80 in this coming week, the S&P would have to take a
mighty tumble indeed.  To 1066 no less.  It ain't gonna happen.  Not this week.  No matter what happens with the S&P 500 this week, that 10 week MA is going to continue to point higher and the masses who follow this indicator are going to be 100% convinced that the markets are headed to new all time highs.  That too ain't gonna happen...

...because unbeknownst to all but myself (lol), the odds of that MA pair crossing back to the downside again are much higher than most interested parties would think possible.  In fact, I predict that before the end of December, most investors who watch that chart are going to be shocked to see that the 10 week moving average is heading south.  What are people going to think then?  I know what I'm going to think.  I'll be thinking that people are going to have had an epiphane... a new-found appreciation for BullTart's theory.  It will all have turned out that this little hiccup in that moving average pair was nothing but a cruel joke.  A little trick played on Bulltart by the scumbag orcs at Goldman Sachs.  You see, banksters think that shit is funny.

 
The truth is... the incredible rally of the past two weeks should never have occurred.  It's going to be unwound.  Because it never should have happened.  It wasn't meant to be.  BullTart's theory says so, and by golly the chart pattern combined with the news I'm getting out of my little calculator strongly suggest that the markets are almost assuredly going to be heading lower after all.  The only thing that could mess up 'my' theory, would be if the markets head higher, lol.  I contend that the odds of that are slim.

But like everyone else, I can't say with 100% certainty that the central bankers of the world won't just collapse all the currencies as a unit, drop the entire basket right off the cliff in a final (and all too common) attempt to save their own sorry asses, their country's good reputations, and screw all of us in the process... the process which would also drive the price of oil to $199.50 per barrel, for starters.  Nah... with $200 oil, I can't see any option but for the the markets to head lower whether we end up in an inflationary (currency destruction) environment or a full blown deflationary environment in terms of US dollars.  Deflation for the USA, inflation for the rest.

One little caveat to this entire discussion.  I all due respect to our friend BullTart, I personally would have never used the 80 week MA.  The reason for that is simply that it's overly slow, overkill.  I would have used the smallest one that still maintained the perfect track record of predicting market direction when a crossover occurred.  And that would be the 65 week.  And as fate would have it, that crossover is still in "down" mode.  It "has not" crossed to the upside.  Here's what that chart looks like.  Quite a different story, yes?

In any event, if you're interested in following the saga of the MAs, bookmark this page because I'll update it every weekend and publish the "secret numbers", the price required in the S&P 500 for the 10 week MA to turn lower as well as the price required for the 10 week SMA to cross back beneath the 80.  Over the past two weeks, I'd published the numbers required for it to cross to the upside and that cross happened exactly when I said it would.  Since the cross didn't happen mid week due to the fact that the S&P hadn't climbed far enough, I declared that it would automatically occur at the open of trading on Monday,  Dec. 5th.   And that's the real reason why, if you look real close, the cross is actually located between those two candles.  So stay tuned... I'll let you know when it's going to cross back below again.

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UPDATE: after the close of Friday, Dec. 16th

As promised and just for the fun of it, here's what's going on behind the interesting 10/80 week moving averages that BullTart is fond of.  Not to mention 'very confident in'.

At the end of last week, I reported (above) that in order for the 10 week MA to cross below the 80 this week the S&P would have had to have fallen a massive amount... all the way down to 1066 this past week.  I also opined that "it ain't gonna happen".

However after this week's market action, where more than 35 handles were peeled off the S&P 500, that crossover to the downside is not as far off as most would think.  Looking at the close-up of the chart above, most viewers would take one look at that crossover to the upside and come to the quick conclusion that "holy smokes, this market is going to the moon".   But hold on there Newt... in the spirit of BullTart's theory that "once that crossover had happened to the downside a major sell signal had been issued", we continue to calculate what it would take for the 10 week MA to turn lower and cross beneath the 80.  As predicted, it's much closer to being possible this weekend than it was at the close last Friday, Dec. 9th.

Here it is:  in order for the 10 week to cross below the 80 in the coming week (ending Dec.23rd), the S&P would have to close at 1090.32 or lower, by the end of this week.  I'll say it again... that ain't likely gonna happen. But as I also said last week, I predict that we're actually going to be seeing the 10 week MA roll over and start to head lower before the end of December.

I was right because guess what?  We're going to see it roll over as early as Monday.  If the S&P 500 closes this coming week below 1224.58, the 10 week moving average will have rolled lower and will have put in a new lower high.  The S&P is already below that required price.  Folks... do you realize how bearish this development would be?  The 10 week moving average rolling lower for the second time in only 7 months and putting in a new lower high in the process?  Holy smokes... that's very, very bearish.  And I'm telling you, it's going to happen this coming week before Santa gets here.  Provided the S&P closes below 1224.58.

Stay tuned, because I'll do this very same report next weekend.  Haha, I also predict this topic is going to come to the forefront once again on the site where all of you initially heard BullTart bring it up.  I'm pretty darned sure that before December is done, and possibly as early as next Friday, the question on everybody's mind is going to be "are we going to get that crossover to the downside once more?"  My best guess is "yes we are".  Stay tuned and I'll tell you what price it's going to take.

And one final note:  A very special Merry Christmas to you BullTart.  Thanks for bringing this particular pair to the forefront and I truly hope this damned banker inspired deke out hasn't hurt you too badly.  Damn their oily hides.

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UPDATE: Monday, Dec. 19th

Well what do you know?  As predicted in the update above, that darned little 10 week moving average did turn lower first thing Monday morning (this morning), lol.  But the markets rallied 3% and it just barely flipped higher.  As long as the S&P 500 is below 1224.58 by week's end that 10 week will remain pointing lower.  In any event, I can virtually guarantee it will be pointing lower at the open on Tuesday, Dec. 27th.  It would take a massive rally over the next 4 days to prevent that.  I'm talking 1285.

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UPDATE: after the close of Friday, Dec. 23rd

Well another week has passed and another 46 handles added to the S&P.  I'm not sure anybody saw a rally of that size coming.  And it may not be over.  As I stated in the update of Monday (just above), the 10 week MA had indeed flipped lower at the Monday open.  But it didn't remain pointed down for long.  Had the S&P remained below 1224.58 at the close today, the 10 day MA would be heading lower right now, but as we all know now... that didn't happen.

Believe it or not, the same thing is darned near going to happen at the open on Tuesday.  This week the 10 week MA would once again be pointing lower if the S&P 500 closes next Friday (Dec. 30th) below 1285.08, the 10 week moving average will have rolled lower and be heading toward that almighty 80 week. Can the market tag on another 20 handles next week?  I don't see why not other than the fact that it's already so overbought.  But it can remain overbought for a long, long, long time too. If the S&P were to in fact rise above 1185.08 and close the week up there, then all of a sudden the odds of the 10 week MA turning lower any time soon drop substantially.  And my goofy little exercise here can be chalked up as a waste of time... more or less.

Damn... which is it going to be?  When the 10 week crossed below the 80, history dictated pretty strongly that a market correction of gigantic size was destined to ensue.  Hence, BullTarts's theory and claims... all of which were well founded.  But now that the 10 week has immediately reversed course and crossed back above the 80, does this imply that we're in for another multi-year rally?  Yes, it does.  I'd say this week is the decision week.  By Friday, Dec. 30th, either the 10 week MA will be pointing lower, in which case BullTart's theory is still in tact but slightly bruised - OR - the S&P will have closed above 1185.08 locking in the 10 week as pointing higher, in which case the odds of it turning lower are going to diminish very quickly due to price action of 10 weeks ago.  Such a development would have been the first time in 21 years or more where the 10/80 weekly crossover issued a false signal in 'either' direction.  Simply amazing what a little liquidity can do to mess up every trading system known to man.  As of tonight, it's all very much up in the air... and getting more interesting as time moves forward.  But there's a real chance that it could become very uninteresting for a long, long time to come, should the S&P close above 1185.08 next week

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UPDATE: after the close of Friday, Dec. 30th

Another week has passed and my question of 7 days ago has been answered.  No, the S&P 500 did not tack on another 20 handles this past week.  You know what that means?  I means that at the open on Tuesday the 10 week moving average will be pointing lower.  It will be pointing lower and headed straight for the 80 week which is not far away.  As one commenter noted last week (regarding a different pairing of MAs) a crossover of the smaller moving average below the larger one would be more 'effective' or 'trustworthy' as a bearish signal if the larger one were headed lower.  That is true in all cases.

The fact is though, that by its very nature, the longer MA is almost always late.  Therefore, we don't know for certain whether or not a real trend change has occurred until that larger MA actually does turn lower.  In the case of the 80 week MA, it changes direction to confirm a major trend change on average 8 months late.  In other words, the 80 week MA will not flip lower until 8 months (on average) after what turns out to have been the high, and at bottoms it turns higher on average 13 months late.

By the way, this phenomenon is also true of almost every moving average... they are later at bottoms than at tops.  It's a phenomenon caused by the fact that there are powers that be who try to hold a market 'up there' for as long as possible.  There is a natural tendency for markets to 'rise' due to the fact that there are hedge funds and banks that have a vested interest in making sure that they do.   Conversely, at market bottoms those same players have every reason in the world to stop the bleeding at the earliest possible convenience.  In other words, even in a falling market, any time they sniff a bottom the power brokers will exert their pressures to try to ensure that it truly becomes a bottom, and secondly, to try to catch the bottom as best they can.  They 'want' the market to bottom even though in a market crash scenario they may not always be able to do so.

Nevertheless, once that bottom has truly been attained, the pressure for it to rise becomes enormous and very quickly so.  Therefore, the downward sloping moving averages are so far 'behind the times' that by time they do finally roll higher, the market is so far above them that the best buying opportunity is way in the past.  In the case of the 80 week MA, 13 months in the past.  When it comes to tops though, that same longer moving average has been afforded a whole lot more time to catch up.  So at tops, the longer term moving averages are much closer to the prevailing price and therefore take less time to roll lower.  Therefore, they are also more accurate.

Ok, back to the situation with the 10/80 weekly.  As I have done in each report so far, I will again identify the price on the S&P that it would take for the crossover to actually happen in the coming week.  It's important to keep in mind that the calculator can only ascertain (with 100% accuracy) the price it would take in the coming week only  And the reason for that of course is that it cannot predict at what price the S&P will actually close this coming week.  It needs to be fed data that is known, not data that still lies in the future.  So just for the heck of it, I can report that if the S&P 500 were to close below 1137.6971 next week (ending Jan. 6th), the 10 week MA will have crossed below the 80.  And of course, the odds of that are very slim indeed.  Nonetheless, just for fun... there it is.

So stay tuned because I think the 10 week moving average is going to close next week pointing lower while putting in a lower high in the process.  And that my friends, would be a very, very bearish development indeed.  But if I am wrong and the S&P closes the week above 1285.08, then the 10 week MA won't likely turn lower for weeks, perhaps months into the future.  It's pretty much a 'now or never' sort of deal.

I'll do the same type of report next weekend.

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UPDATE: After the close on Friday, Jan. 6th.

Well officially it has happened.  The 10 week moving average has indeed turned lower and is now falling toward the rising 80 week MA.  True enough, it is barely visible since the MA has 'just' rolled over at the inflection point but it is pointing lower.  As detailed in the Dec. 30th. update (just above), as long as the S&P 500 closed below 1285.08 today and cemented the moving averages in place for the week, the 10 week would be headed lower.  And that's exactly what has happened.

But next week will really be the clincher.  That's when the rubber really has to meet the road.  Because in order for the 10 moving average to continue pointing lower, and not just go sideways from here (if not outright flip back higher), the S&P 500 must get below 1253.23 by the end of trading on Friday, Jan. 13th.  If that happens, the potential for the 10 week to cross back below the 80 would be very real indeed.  However, if the S&P does not close below 1253.23 next week, we'd be looking at a whole different ballgame.

When BullTart brought this particlular moving average pair to our attention, he was dead on correct with his assessment and in his faith that the initial crossing of the 10 week below the 80 was a signal of mega proportions.  In the past 21 years at least, this crossing had never failed as a confirmation of a mega-change in trend.  But naturally, as is the case with any moving average pair of this magnitude, obviously it is very late at both tops and bottoms.  To be more precise, 8 months late at tops and 13 months late at bottoms on average.  [This is typical behavior for moving averages to issue better signals at tops than at bottoms, and I explained why it happens in the Dec. 30th update just above.] But I don't believe BullTart ever declared that this crossover was an "initial" sell signal.  He only said that it was a confirmation... and he was correct.

In any event, once I saw the possibility that the S&P 500 was behaving in a way unseen in the past 21 years at least, and that this weird stock market action might indeed cause the 10 week to turn back above the 80, and in the process trash BullTart's perfectly good assessment, I thought I'd jump into that discussion in his defense... before the trolls got there.  Because I knew that if the 10 week actually did cross back over the 80 (as it subsequently has done), there was every possibility that it would be short lived.  We are now at the crossroads.  Next week is key.  1253.23 to be precise.  That's the level required to keep the 10 week heading south.  If the S&P is any higher than that at the close next week, the odds drop dramatically that the 10 week is actually going to turn lower at all... potentially for a long, long time.  The S&P 500 has exactly one week to git 'er done... 1253.23

So check in next week for another update... it's going to be fun to find out either way.

UPDATE: Late day, on Friday, Jan. 13th.

As noted on the Jan. 6th update (just above), the 10 week MA did indeed turn lower.  How long did it last? About a day... just long enough to cement the little down-flick in place and then the market surged higher this week.  It's been a long, long time since we've seen the 10 week moving average jacking around like this.  I'll save you the trouble of having to scroll up and find the link to the close-up.  Just click this thing.  And as crazy as it sounds, it wouldn't be at all difficult for the 10 week MA to turn back lower again next week.  In fact, if the S&P closes the week (ending Jan. 20th) below 1263.85, that's exactly what is going to happen.

When we look at momentum indicators on a daily chart of the S&P, I can't see any reason why we should necessarily be expecting it to turn lower although there are negative divergences starting to show up.  But a 60 minute chart tells a bit of a different story.  With negative divergences showing up there as well, and with a pattern that clearly looks like a corrective 3-wave sequence higher off the late November low, and that one itself more than likely representing a 'c' leg of a larger 'ABC' off the October low, EWT could certainly make a case for lower prices at any time.  It depends on which Elliott Wave technician is counting the waves.  Nevertheless, it's entirely possible... the 10 week MA will turn lower yet again next week (ending Jan. 20th) if the S&P closes below 1263.85.  And that would put it on a collision course with the rising 80 week.  It gets interestinger and interestinger.  In short... this is one seriously wacky, jittery and frightened market.

Check in next Friday for another update because if the 10 week has indeed turned lower, I'll start adding information about what price it will take for the crossover to actually occur... to 4 decimal places of accuracy if you want.  Have a great weekend :-)

 UPDATE: Late day, on Friday, Jan. 20th.

As I reported in the update of Jan. 13th, (just above),  the 10 week moving average still had a chance to turn lower this week.  It would have taken a move lower in the S&P down to 1263.85.  As of last Friday, such an outcome was entirely possible.  But no more!

If nothing else, today's close will complete one mission with flying colors.  It is going to not only cement the 10 week moving average firmly in place as a solidly rising moving average, but the chances of that MA rolling over in the near future just flew right out the window.  The odds are now very slim that that average will turn lower for perhaps months to come.  I'll save you the trouble of having to scroll up for the close up chart.  Just click this thing.