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A few weeks ago I wrote about how the 13-week moving average for the S&P 500 index looked as though it was going to make a bearish crossover of the 52-week moving average.
While these moving averages are non-traditional ones that very few people talk about, they represent one quarter’s worth of data versus one year’s worth of data. If we include the 104-week moving average, we now have trend lines representing one quarter, one year and two years.
The crossover of the 13-week and 52-week moving averages on the S&P hasn’t happened yet, but looks like it will happen this week, even if the market rallies. Last week, the index closed below its 104-week moving average for the first time since October 2011.
The SPDR S&P 500 ETF (NYSEArca: SPY) closed just above its 104-week, faring just a little better than the underlying index. The SPY hasn’t reached oversold territory yet based on the slow stochastic readings, and it just entered oversold territory based on the 10-week RSI. The weekly slow stochastic readings haven’t been in oversold territory since mid-2012.
Looking at the other ETFs that represent major domestic indexes, the PowerShares QQQ Trust (NASDAQ: QQQ), which represents the Nasdaq 100, closed below its 52-week moving average in two of the last three weeks. But it looks like it will be a few weeks before we have to worry about a bearish cross of the 13-week and 52-week moving averages, and the QQQ is further from being in oversold territory than we saw with the SPY.
The SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA), as the name suggests, represents the Dow Jones Industrial Average. It has already seen its 13-week moving average cross bearishly below 52-week moving average, and it closed below its 104-week moving average last week. The DIA has already hit oversold territory on both the RSI and the slow stochastic readings.
The last time these three index ETFs all saw their 13-week moving average cross bearishly below their 52-week moving average was in the third quarter of 2011. The last time all three saw their 13-week cross bearishly below their 104-week was in the third quarter of 2008.
During the financial crisis, the SPY saw its 13-week cross below its 52-week at the very beginning of 2008. It then rallied back up to its 52-week moving average before proceeding to drop 50% before bottoming in March 2009.
My suggestion to investors is to keep an eye on these three index ETFs and the three moving averages I’ve discussed. Should the 13-week cross bearishly below the 52-week moving average, I would suggest lowering your equity allocation.
Should the 13-week cross bearishly below the 104-week, I would suggest cutting your equity allocation to the lowest level you deem acceptable. If this happens, I will personally shift 80% of my portfolio out of stocks and into fixed income.
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