S&P and Dow Headed for Moving Average Crossovers

The Nasdaq's 50-day moving average crossed over its 200-day moving average last week. Expect the same for the Dow and S&P in the days ahead.

Traders often look for moving average crossovers as bullish or bearish indicators. A move of a shorter term moving average (e.g., the 50-day)

above a longer term average (e.g., the 200-day) is seen as bullish. This kind of crossover is an indication of positive momentum and could drive the markets even higher as traders react. When the opposite occurs, the bears come out.

For example, look at the historical chart of the Dow below. Soon after the Dow was hitting its highs in 2007, the 50-day average crossed below the 200-day average. At that point, the Dow was still well above 13,000. We all know what happened next. Had an investor gotten out of the market at that point, he or she could have avoided huge losses and would still be ahead today, even with the rally of the past three months.

Now, the Dow and the S&P's shorter and longer term averages are converging. Based on the current trajectories and assuming no disproportionate rally or selloff in the next few days, we could see the cross over take place for the S&P by late next week and for the Dow a few days later.

Charts of the S&P and the NASDAQ

Like the Dow, the S&P's 50-day moving average crossed below its 200-day moving average at the end of 2007 and is poised to cross back above next week.

The NASDAQ's 50-day moving average crossed below its 200-day moving average a bit later than it did for the S&P and Dow. However, it was the first of its peers to see its 50-day average cross back above its 200-day trend line.

Some of the Dow components leading the current rally include Bank of America , American Express , Alcoa , JP Morgan Chase and General Electric .

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