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The Single Most Important Chart for Long-Term Investors

Buy-and-hold strategy has produced some astounding results for traders who followed this chart


Biotech stocks led Monday’s rally accompanied by small caps and other stocks that had been beaten down during the month of March. The Russell 2000 gained 1.8%, and the Nasdaq rose 1%, compared to smaller gains for the Dow industrials and S&P 500, both up 0.8%.

Buyers were encouraged by comments from new Federal Reserve Chair Janet Yellen, who indicated that the central bank would continue to support a low interest rate policy. She went on to say that the Fed is short of its employment and inflation goals, and that the economy will require “considerable support for some time.”

At Monday’s close, the Dow Jones Industrial Average was up 135 points at 16,458, the S&P 500 rose 15 points to 1,872, and the Nasdaq jumped 43 points to 4,199. The NYSE traded a total of 3.3 billion shares, and the Nasdaq crossed 2.1 billion. Advancers outpaced decliners by 3.1-to-1 on both major exchanges.

For the quarter, the Dow was down 0.7%, the S&P 500 gained 1.3%, and the Nasdaq rose 0.5%. 

SPX 17-Month Chart
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After a miserable January, February rebounded with solid gains, and March, though volatile, held its own. Thus, the 17-month moving average (MA) chart of the S&P 500 shows an advance for the year. The index is now 13% above its 17-month moving average, as compared to the end of January, when prices were just 11% above the MA.  

For long-term investors, a buy-and-hold strategy has worked well since 1999, as long as they followed the guidance of this chart. Buying when the black price line crosses above the red moving average line and selling when the black line crosses below the red line has produced some astounding results.

SPX Chart
Click to Enlarge

Chart Key

Turning to the daily chart of the S&P 500, we see that February’s rally put the index back on a bullish course, and March’s price action has formed a solid support zone. Note the rising 50-day moving average and the upturned red hook on the MACD indicator.

Conclusion: Despite some short covering in the tech sector, Monday’s rally was solid with over a 3-to-1 advance ratio confirming that the trend is up. Rebalancing of portfolios gave way to bargain hunting on the last day of the quarter as institutional investors couldn’t resist some of the ridiculously low prices of biotechs and other beaten-down groups. 

As noted earlier this week, April is renowned for its solid stock performance. And the chart of the S&P 500 indicates that the bulls are in charge and are supported by a zone of buyers at 1,813 to 1,850, as well as an upward drifting 50-day moving average. The light resistance at 1,884 should shortly give way to new highs.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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