Market Analysis

Yearly Charts

I’m going to show you some yearly charts that I think everyone should see.

You won’t see these charts anywhere else and most likely I’ll get accused of scare mongering for even showing these charts, but I’m showing them to raise awareness and to educate. People can make up their own minds about them, but rest assured all these charts are data driven and they highlight a key concern of mine from 2017 and one that’s now become even further amplified into 2018: These markets are technically completely extended, uncorrected and at high risk of an ‘accident’.

Recently I discussed my 2017 Market Lessons and in a few days I’ll be publishing my 2018 market outlook and no doubt these charts will factor into the analysis.

Before I show these charts some technical background: Moving averages (MA’s) are an expression of price in relation to time. There are longer term moving averages such as the daily 200 MA and the 50 MA and much shorter term moving averages such as the daily 8 MA or the even shorter term moving average, the 5 exponential moving average (EMA).

Moving averages are always worth watching as they often present key market pivots or turning points. They can also be support or resistance or act as price magnets as markets ultimate gravitate toward them for balance even when in an up trend or down trend.

One of the favorite moving averages in this regard is the 5 EMA. It is relevant on any time frame really.

Below is an example of the $SPX weekly chart with its 5 EMA:

The message: While there are time periods where price does not touch the 5EMA extended moves above or below invariably force a reconnect. Depending on trend the 5EMA often also acts as support or as resistance. For most of 2017, for example, the weekly 5 EMA has acted as steady support. During the 2015 and 2016 lows it initially acted as resistance on the first bounces off of the lows. But price always reconnects. Let me re-emphasize: Price always reconnects.

Here’s a view of a different time frame, the monthly 5EMA on $SPX, confirming again what I just outlined:

And you can do this with any stock, index and/or timeframe. It’s basic technical analysis (TA).

I mention all this to give the reader an appreciation of the gravity of what I’m about to show, and that is the price of different indices and stocks versus their respective historical yearly 5 EMAs.

On annual charts we can also observe regular reconnects with the 5EMA especially after large deviations from it. I am showing mostly linear charts to highlight the historicity. Whether shown in linear or log form it makes no difference as to the percentage disconnect from the annual 5 EMA. The math is the same.

So without further ado here we go showing price of various stocks and indices at the beginning of 2018 versus their respective 5 yearly EMAs.

You have to see it to believe it:

$MSFT: 26% above its 5EMA. Note how the stock has reconnected with its annual 5 EMA every single year except two: 1999 and 2017.

$AAPL: 26.4% above its 5EMA.

$AMZN: 34% above its 5EMA.

But don’t think this is just big cap tech, watch this:

$CAT: 29% above its 5EMA.

$MCD: 26.6% above its 5EMA.

$BA: 35.4% above its 5EMA.

I trust you get my drift here. A simple 5 EMA reconnect, entirely within the normal historical functioning of markets, would constitute a seismic shift in asset prices. But even a move in the direction of these 5 EMAs represents something these markets haven’t experienced in a very long time: Corrective activity.

For reference here’s the monthly $FTSE All World index:

As I said in 2017 Market Lessons: None of this is normal.

As some of the individual stock charts above represent big market cap players they have a strong influence on the larger indices. While the disconnects in these are not as extreme they are nevertheless notable:

$DJIA: 16% above its 5EMA, also note the $DJIA is completely outside its annual Bollinger band:

$SPX: 14.4% above the 5EMA

$NYSE: 10.8% above the 5EMA

$NDX: 20.6% above the 5EMA

And last but not least, here’s the old $VIX, the $VXO:

The lowest start to any year following the lowest quarterly and lowest annual close ever.

Now everyone is obviously free to ignore all these charts, after all the global artificial liquidity machine propelling these markets have continued to extend these charts without any consequences so far. But these charts give a unique perspective and that is: Stocks and indices are historically extremely disconnected from their annual 5 EMAs and prices ALWAYS reconnect with them. It’s just a matter of when, not if.

One final consideration: Following the 2000 and 2007 market peaks price fell right through the annual 5 EMAs on the way down. But “it’s different his time”. Maybe. Maybe not. But at least you are now aware where prices are currently residing in relation to technical market history.

Categories: Market Analysis

44 replies »

  1. Charts, squiggly lines, geometric shapes DO NOT PREDICT ANYTHING. You couldn’t be more wrong.

    A “moving average” is the result of prices over time. It is set by the value of the object being measured. The “moving average” is dependent upon the underlying object being measured not the other way around.

    All of those examples you posted WILL show the “moving average” rising to meet the price not necessarily the price falling to meet your arbitrary squiggly line.

    There is no such thing as ANY viable t/a..never was and never will be

    If you doubt me I challenge you to produce a single academic statistically viable peer reviewed study that demonstrates the viability of ANY t/a “system” of fortune telling. Common sense would tell a rational man that nothing can foretell the future. If such a system existed it would be immediately adopted by everyone and become moot. The markets discount all schemes and memes.

    Go find me a single valid study and tell me why everyone doesn’t use it, why your smart phone doesn’t have an app using it to auto trade your account to glory and how any predictive model remains valid when everyone knows what to expect

    You will search in vain.

    There is no such thing….it’s all voodoo nonsense for the credulous, gullible and simple minded

  2. Very nice charts and analysis which I agree with – very spot on. If you don’t mind, what charting software or site did you use to create the yearly charts?


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