Back to Basics: Market sentiment via 2-line EMA on S&P500

[caption id="attachment_303" align="aligncenter" width="500" caption="S&P 500"][S&P 500][][/caption]

One of the most, if not THE most, important theme in trading is identifying if we're in a bull or bear market. It's easier to "ride with the wave" than to fight against it. While there are an abundance of work, studies, theories, or whatever, on calling out market sentiments, I feel that the most useful way of doing it would be ones that stick to the facts. And the only fact we can be certain of in the market is the price.

So here's the idea (definitely not original) for guessing market sentiment.

  1. Bull market = 50 dma > 200 dma for S&P 500.
  2. Bear market = 50 dma \< 200 dma for S&P 500.

As with any indicator, this is not a law. It's just a signal to give you a piece of information for you to intrepret based on the fundamentals and maybe other technical analysis tools.

[S&P 500]: http://traderpau.files.wordpress.com/2008/10/sc_snp500.png