Trend Analysis of the S&P 500 for 2010

Here's a chart of the monthly trend of the S&P 500.

You can see the march lows and the subsequent surge upward. The white line is a trend line, measuring the pace of our rally. You can see how we bounced off it a few times recently before breaking below it. It's no coincidence that we bounced off it it so many times, and it's no coincidence that when that trend line broke, the S&P sold off dramatically. In other words, a lot of people are watching that same trend line.

Anyway, there has definitely been a momentum shift in our rally and we just made a lower low. However I wouldn't count this rally out yet. In order to safely say that the trend has reversed I would like to see price pull back (eg. upwards) and then fall again. In other words, form a lower high. I outlined what this may look like with the orange line. IF that happens it could signal some real problems with the S&P, but remember that is only an IF. The key is to wait and react, not predict.

The blue plot above is the EUR/USD, or more simply, it is the Euro's strength against the U.S. Dollar. When it rises, the Euro is gaining strength (against the USD) and the dollar is losing strength (against the Euro). When it falls, the Euro is losing strength and the Dollar is gaining. It's interesting that our sell off has been matched by a sell off in the EUR/USD. In other words, for some reason, while the S&P has been tanking, the dollar has been gaining strength in an almost uncanny correlation.