As long as the Nasdaq remains above its 10-week SMA on a closing basis, the market should remain in rally mode. Below it, the market will struggle.

Yes, it can be that simple.

Need some evidence? Let's look at the S&P 500.

The S&P 500 broke out to new three-and-a-half-year highs in March, but the Nasdaq lagged noticeably. I stated at the time that the rally was doomed to fail because the Nasdaq wasn't leading. My reasoning was that the Nasdaq was a locus for speculation, and without speculation -- or in this case Nasdaq participation or leadership -- the rally wasn't sustainable. While this assertion proved to be correct, the most valuable insight I gained from this case came from a study I designed.

I looked at two methods of buying the S&P 500. The first way was to buy when the index closed above its 10-week SMA. The position was sold when the index closed below the moving average. The second method was to buy the S&P 500 when the Nasdaq Composite closed above its 10-week SMA. The position was closed when the Nasdaq closed back below this moving average.

That's right, I'm using the Nasdaq to time my buys and sells in the S&P 500. This has proven to be very profitable.

Over the past 35 years, such a strategy would have netted over 2.5 times as many S&P 500 points as the strategy that only considered buying based on the S&P 500 and its 10-week SMA. Using the Nasdaq to buy the S&P 500 yielded similar returns to buy and hold, but with 50% less drawdown to capital. The complete performance data for this strategy is shown in the table below.

What about buying and selling the Nasdaq when it closes above and below its 10-week SMA? The performance results for such a strategy are shown below.