The 2 Most Important Questions For Investors [SPDR S&P 500 ETF Trust] - Seeking Alpha

The 2 Most Important Questions For Investors [SPDR S&P 500 ETF Trust] - Seeking Alpha



This is another great article by Chris Ciovacco.  No one knows how the future of the stock market will turn out, but certain charts can give a reasonable direction for the market.  As Chris explains, the charts show what the aggregate opinion is for stocks advancing or declining.  In a bull market, the S&P 500 generally always stays above the 200-day moving average, and the slope of the 200-day line is upward.  The 50-day line is more volatile, but the slope of the line is going up most of the time.



Chris also presented tables to show the amount of money you would either make or keep if you correctly decipher the stock market's direction.  For example, he stated that the market rose 91% between 1997 and 2000.  If you had stayed in stocks during those three years, you would have almost doubled your money.  If you had stayed on the sidelines, you would not have gained anything significant for your retirement money.


Then, on the bear side, if you stay in the stock market when it is going down, you can easily lose more than 50% of your money.  If you have $50,000 saved up, your money would drop to less than $25,000. So, it is highly important to pay attention to the charts and buy either bullish or bearish stocks depending on the general market direction.

What happens if the S&P 500 or Dow drops below the 200-day line? How do you know if the market is still in bull mode or has changed to a bear market?  The first way is to look at the slope of the 200-day line as I mentioned above.  If it has not gone flat or down, you are safe, and it is a buying opportunity.  The second condition to check when the market is going down is the economic situation.  If the Federal Reserve still has positive economic numbers, then you need to stay in the market as long as the 200-day slope is upward.  By checking both the 200-day chart and the economic picture, you will not get whipsawed around on big stock market pullbacks.