On 02/02/23 the S&P 500(SPX) – 50 – day moving average (MA) crossed above its 200 – day MA, this is known as a “Golden Cross”. The SPX rallied and peaked on 02/02/23 then declined and has since stayed below its 02/02/23 high. The SPX could still climb above its 02/02/23 high, for now it’s a potential failed bullish signal. What happened on 02/02/23 could be the most significant bearish stock signal since November 2007. Currently U.S. and global stocks could rise for a few weeks or a few days. If the rally fails – the next decline could last a lot longer than a few weeks.
When something out of the ordinary occurs in a market it could be a significant clue to a major trend change. November is seasonally the most bullish month for stocks. In November 2007 just after its then all-time high in October the SPX declined 9%.
The monthly SPX chart 2007 to 2009 courtesy of Trading View shows what happened.
To many traders the 9% drop was probably viewed as just another correction within the bull market and bought the dip. Those with knowledge of season patterns were probably suspicious. A stock market drop of 9% in November is very unusual. Traders did buy into the November 2007 decline and the SPX rallied in December 2007. The subsequent bear market fell 56% before its final bottom in March 2009.
The S&P 500 index is used by most, if not all U.S. Stock fund managers measure their performance. The 200 – day MA line is probably the most used Technical indicator. Its almost a self-fulfilling prophecy. Moves above the line can trigger prolonged rallies. Moves below the line could initiate sharp drops.
A high percentage of Golden Crosses signal bullish moves. The 02/02/23 blog “Golden Cross Signal – 02/02/23” noted that of the eleven Golden Cross signals in the prior twenty – five years only one signal was a failure. As of 03/24/23 the SPX 02/02/23 Golden Cross is only a potential failed signal.
The SPX chart 2021 to 2023 illustrates the current situation.
The Elliott wave count is a more detailed and updated version of the count illustrated in the 03/16/23 blog “S&P 500 – Alternate Elliott Wave Count – 03/16/23”. I now consider this to be the prime Elliott wave count. If this count is correct the rally that began on 03/13/23 is Minor wave “E” the terminal portion of an Inverse Elliott wave – Horizontal Triangle. After termination of Horizontal Triangles there’s usually a thrust in the direction of the main trend – which in this case is down.
The date of 05/02/23 is a guess as to when the bullish season for stock could end. Stocks could continue to rally after 05/02/23 or peak before 05/02/23. If there are additional bearish fundamental factors, a top before 05/02/23 is more likely.
In order to better understand what may have happened on 02/02/23 think of markets as non-violent warfare. The authors of “Mind Over Markets” put market participants into two categories. The first are Day traders that provide liquidity to markets. The second are called Other Time Frame buyers/sellers, they are big money and are the primary movers of markets. They hold positions for longer than one day, and become day traders when they buy or sell. Big money usually accumulate/distribute positions slowly over a period of weeks or months. If they buy or sell too much and too fast they buy at a premium and sell at a discount.
Other Time Frame buyers/sellers need liquidity.
What may have happened on 02/02/23 is that Other Time Frame sellers were selling into the buying liquidity provided from Day Traders and perhaps some ignorant Other Time Frame buyers. The side with the most money wins the battle – in this case it was the Other Time Frame sellers.
if the SPX gets near the 02/02/23 top the buyers could again be overwhelmed by a wave of Other Time Frame sellers.
The vast majority of Golden Crosses are bullish. The most current signal occurred in the bullish season and the SPX has yet to exceed it 02/02/23 high.
The stock bulls are running out of time – the bullish season could end soon.
The post 03/13/23 rise could have a similar result to the SPX – November to December 2007 rally.