Looking at a daily chart the market has been in a sideways range for the last few months. There's no doubt that it's been a frustrating time for many shorter term strategies. Especially those relying on momentum and strength. But if we take a look at the monthly chart of the S&P 500 going back to the 90's, we're able to get a better grasp on the current environment. On this price chart we applied a simple 12 month moving average. This has been a great trend following guide over a long term scope. When above the 12 month average the market shows some nice bullish moves. The chart clearly identifies the bull markets in the 90's, 2003-2007, and 2009 to present. When the 12 month MA is breached to the downside, the market has at the very least consolidated for a few months. And in the most severe cases, we see history's recent nasty bear markets.
Technical analysis isn't a fool proof strategy. During the current bull from the 2009 bottom we have seen several swings below the 12 month moving average. However the line never fully rolled over and after some sideways pauses managed to continue its upward trajectory on each occasion. A close below the line was a time to get defensive with the 2010 flash crash and summer correction to the 2011 European debt crisis and mini bear market. We had a quick scare in October as we busted below the line only to finish the month at the highs. And even this month we touched the rising trend with last weeks low. Until this moving average flatlines and ultimately rolls over the bull market will stay in gear. A close below this level should raise some doubts about the current market considering the length of the bull off the 2009 bottom.
