SPY and QQQ Charts, March 2023

Simple Moving Averages

I think this is the best daily chart to look at. The idea is to include maximum information in as simple a structure as possible to facilitate understanding. The conventional two SMA choices are the 20 day and 50 day, which are fine of course. I use the 18 day and and 54 day. A major decision is the order of magnitude of time between short and long term SMAs.

20 days * 2.5 = 50, 18 days * 3 = 54

The typical complaint about SMAs is that there is too much lag. These criticisms are questionable; the main thing to look at is price, which has no lag. The long term trend issue is the rally beginning in October and evaluation of the February pullback.

Price crosses below moving averages are usually negative volatility events so many averages are taken out at the same time. Flattening long positions on negative price crosses is strategically dubious; at that point, it is too late. The short term moving average cross below the longer term is often a better buy than sell signal, as shown here.

Particular attention should be paid to price action between the short and long term averages. There are two different instances of this on the daily chart.

The 54 day at 399 and 18 day at 394 are normal pullback from here. I expect the 18 day to cross above the 54 day before any significant down countermove below 394.

Charts were difficult and expensive to produce before computers; longer term daily averages are anachronistic. The problem with putting them on a daily chart is that three data series on a chart is about as much as a human can comfortably handle.

The 13 week SMA = a quarter, and the 52 week = a year.

The 13 week crossed above the 52 week on the second last candle. It had previously crossed below the 52 week in May 2022.

The SPY 13 month SMA crossed above the 39 month in October 2010, The distance between the two SMAs was extreme going into 2022. The last half of 2021 was an extended time period to reduce portfolio size.

An excursion back down to the 39 month at about 383 is definitely possible. The clear reading of the monthly action is a bottoming formation. Breaking the February 2023 (416) and August 2022 highs (426) are upside targets in an area of important resistance.

I remember commentary on the October rally saying that there was something wrong with the October 2022 bottom. It seemed remarkable that an analyst could have such a subtle understanding of bottoming formations. Bad periods don’t happen that often and they all seem substantially different.

Unlike SPY, QQQ found support at the 54 day SMA, and there was no short term SMA cross below the long term.

Instead of consolidating above the 39 month SMA like SPY, QQQ found the 39 month an area of resistance. It has now broken above both the 13 and 39 month SMAs. The 13 week SMA now has a positive slope, and the 13 month and 52 week slopes should become positive quickly.

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