The larger S&P range is found between the 1 – 10 year monthly averages at 2041.62 -1444.45. The point at 1444 is overbought while 2041 is significantly oversold and much more oversold than is 1444 overbought. Since September, S&P averages are trending higher however slowly. The 10 year average for example was 1423 now 1444, the 5 year was 1626 now 1669, the 2 year was 1968 now 1999. The 1 year was 2048 now 2041 and a negligible difference. One year ago, the 10 year average was about 1200. Two factors associated with slow mover averages.
The first is 2008 crisis lows in the averages almost completely disappeared while PE ratios trailing 12 months was 19.79 one year ago and now 20.93. Today’s PE ratio is about 16.0 and not completely terrible in post crisis and historic terms. Ultimately, lower PE Ratios would be the optimum long scenario to see averages rise faster and higher but those are specific market instances.
From the 1929 close, next above are 1 and 2 year averages at 1999.33 and 2041.62 while below the oversold 3 year average is located at 1889.95. Middle averages 3, 5 and 7 years are severely oversold and present buying opportunities especially on any dips as targets reveal 1889.95 will hold. Only a striking market disaster breaks 1889.95 and then target becomes 1790.39. Rising averages supports the higher view as well.
A break of 1999.33 targets next 2006.50 while a failure targets below levels at 1976.63, 1976.43, 1927.87 and 1920.88. A break above 2041.62 targets 2066.70, 2067.25 and 2077.78. Further out along the curve targets next above 2041.62 include 2106.61.
Overall, the S&P averages are in good shape. Significant tops are not seen but rather are more oversold with room to run higher. The level at 2941 is the big point break. Failure to break would still see rises in longer term 1444 averages. Over time, 2041 would then compress versus its 1444 counterpart to cause an eventual showdown. Moving forward, I would adopt a buy dip strategy with eyes on the eventual break of 1999 and 2041.
Brian Twomey, Inside the Currency Market, btwomey.com