March Madness for the S&P 500

by Robert McHugh
March 25/05

Major Trend Changes are the Norm in the Month Of March for the S&P 500

For the past six years, major trend changes have started during the month of March, with several around the equinox. And it looks as though this has occurred once again this year, on March 7th, 2005. The decline since March 7th has been impulsive with considerable technical damage to the averages. While there will be bounces along the way, we believe a major trend change lower is underway, and the two and one-half year rally from October 2002 is over. One of the compelling arguments for a substantial long-term decline resuming from here is the comparison of past Bear market price action with the current pattern. Analogs measure investor psychology of the past, and offer a blueprint for likely behavior in the future.

The next chart compares the rise and fall of the S&P 500 index from 1998 to 2002 with the trend in prices since October 2002. The similitude is uncanny. It is suggesting that prices should have peaked in early March 2005, consistent with the March "turns" phenomenon, and that next is a longterm devastating decline.

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"For God so loved the world,
that He gave His only begotten Son,
that whoever believes in Him should not perish,
but have eternal life."
John 3:16

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at http://www.technicalindicatorindex.com/. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.