The Big Picture in the S&P 500 — Bullish or Bearish?

Every now and then it’s good to look at the big picture in the S&P 500 with monthly charts.

First, here’s the chart that many Wall Street analysts watch to get an idea of the S&P 500’s big trend.  It’s a monthly chart with the 5- and 15-period moving averages.

You can see that the 5-month moving average crossed above the 15-month moving average back in September.  The last time this happened – back in June of 2003 – it signaled the start of a big bull market.  The time it happened before that, in 1994, it signaled – you guessed it – a big bull market.

How can the market be so bullish when our economy has so many problems?  Part of it is the decline of the U.S. dollar – when the dollar goes lower, assets like stocks inflate in relative terms.  Also, the government throwing money at banks, which then use that money to play the markets, doesn’t hurt either.

But now the U.S. dollar is rallying.  I’ve explained my targets on where I think the dollar could go in the short term (over the next couple weeks to as long as a couple months – it’s hard to predict exactly how long).  This should weigh on commodities and stocks.  We are seeing this reflected in momentum weakness in the S&P 500.  The RSI oscillator is stalled out at the 50 level, indicating indecision.

And there is always the potential that this pullback could be the start of something bigger.  Let’s look at another monthly chart of the S&P 500 …

I’ve removed the moving averages and magnified the chart so you can clearly see that January was a bullish outside reversal – the bearish candlestick engulfs the previous bullish candlestick. This can indicate consolidation, or even the start of a steeper correction.

We are playing this in Red-Hot Commodity ETFs with some bearish positions.  But that doesn’t change my longer-term view, which is bullish on commodities.  In this way, the dollar rally/market pullback is a gift.  Why?  Because it will give us great entry points into commodities and commodity stocks and ETFs of all types.

I’m leaving for Orlando today to speak at the World Money Show. If you’re attending the Money Show, please stop by the Weiss Research booth and say hello, or you can catch my seminar on Friday.

Related Posts

• Bearish news on energy (08/28/08)
• Bullish Dollar has Stocks and Commodities on the Run (06/15/09)
• Picture of the Day — Signs and Portents (12/14/09)
• Bullish Uranium News? (04/17/08)
• A Surge of Bullish News for Commodities (07/15/09)