We Still Haven't Escaped the Bear

Watching the 200-Day

One of my longtime market observations is that bulls live above the 200-day moving average, while bears live below it. In other words, buying forces control the ticker tape when the major averages are trading above that long-term line in the sand, and selling forces are in control when they've fallen below it.

All major averages broke 200-day moving average support in late December and early January. In the following month, the 50-day moving averages dropped below the longer-term ones, triggering the classic "death cross" sell signals that are associated with bear markets. These signals are still in place, despite the monthlong rally.

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The Powershares QQQ Trust and Dow Industrials have rallied just above their 200-day moving averages, while the S&P 500 and other indices (such as the Russell 2000 noted above) are still trading well below equivalent levels. Although the stronger indices have nosed higher, there still hasn't been a high-volume break of this major resistance.

Sadly, the bear market environment will remain firmly in place until two milestones are achieved. First, all major indices must finally remount 200-day MA resistance, and second, the 50-day MAs must cross back above the 200-day MAs and reinstate the bullish technical outlook. Until then, we need to tread lightly and not get carried away by the rising tape.

Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.

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