Silver as an investment

What Does the MACD Tell Us About the Risk of a Major Market Peak?

financialsense.com / FS Staff / 07/28/2017

Risks to the market appear elevated over the next 1-3 months with a variety of sentiment readings edging into overly bullish territory (see Rydex Trader Bullishness Surpasses 2000 Tech Bubble). Longer-term, however, the yield curve and other leading indicators aren’t suggesting the risk of an imminent major peak or recession.

Another important indicator that agrees with this outlook, which has been quite useful for identifying major trend changes in the S&P 500, is a trend-following momentum indicator called the MACD (in blue below).

We’ve shown green and red arrows on the S&P 500 corresponding to MACD buy and sell signals (when the blue line goes above and below the red-dotted zero line) and, though it has been less timely on market bottoms, following its advice on bearish crossover sell signals would’ve gotten you out near the very peak of the 2000 tech bubble, the 2007 top, and also at the intermediate-term 2015 market top.

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