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S&P 500 May Be Above 2000 but There's Still Downside Risk

 

NEW YORK (TheStreet) -- Whenever a major equity average reaches a major milestone, investors should look at the charts to evaluate the risk/reward of that index. The S&P 500 closed above 2000 for the first time on Tuesday so its time to evaluate its daily, weekly and monthly charts.

Courtesy of MetaStock Xenith

The daily chart for the S&P 500 shows its price pattern since trading as low as 1343.35 on Nov. 16, 2012. The key for the uptrend was the close on Nov. 21, 2012, above its 200-day simple moving average (green line) at 1382.93. This moving average has not been tested since than and it's at 1876.2 Wednesday morning. The study in red at the bottom of the graph is the 12x3x3 daily slow stochastic at 92.97. This is extremely overbought as this reading is well above the overbought threshold of 80.00.

Going back 20 years the S&P 500 has tested its 200-day simple moving average in every year except 2013 and 2014 year to date. Investors should consider booking profits on a high probability that the 200-day SMA will be tested before the year ends. Keep in mind that the 200-day SMA is considered a short-term "reversion to the mean."

Courtesy of MetaStock Xenith

The weekly chart of the S&P 500 is positive with its five-week modified moving average at 1965.74. The green line on this graph is the 200-week simple moving average, which was last tested at 1142.81 in October 2011. Today this average is at 1502.84. This moving average is considered a long-term "reversion to the mean."

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