Hello everybody. This week, we’ll take a look at the long-term picture on the S&P 500, starting with the monthly chart, which goes back to 2020. We’re focusing on this because a major technical indicator has recently been triggered—the monthly MACD.
A Sell Signal from the Monthly MACD
The MACD, or Moving Average Convergence Divergence, is a trend-following momentum indicator that shows the relationship between two moving averages. When the distance between these averages starts to shrink, it triggers a sell signal. That’s what we’re seeing now.
At the bottom of the chart, you can see the monthly MACD. I’ve marked the area with a red circle where the sell signal has been triggered. This coincides with the sell-off we experienced in April.
Why is this important? Because the MACD is one of the most widely followed technical indicators. A monthly MACD sell signal carries significant weight for investors who use technical analysis. And because it’s a long-term chart, its signals are more meaningful.
If we look back on the chart, the last time we saw a monthly MACD sell signal was at the beginning of 2022. What followed was the decline we experienced that year. Later, we got a buy signal, and prices turned back up.
Now, it’s important to understand that a MACD sell signal doesn’t always predict a sharp decline or crash. But it typically means prices stop rising—and often move sideways or slightly down. It’s a sign of increased risk.
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Looking Back to 2000: What Past Signals Tell Us
Going back further on the chart to the year 2000, all the red vertical lines show previous MACD sell signals, and the green lines show buy signals. As you can see, after a sell signal, prices rarely go up. Instead, we tend to see sideways or downward movement for several months—until the MACD resets and a buy signal is triggered again.
This is why it’s a risk management tool. It doesn’t mean you must expect a crash, but it suggests a higher likelihood of limited upside, or even downside, over the coming months.
Sometimes, there are false signals. You can see that on the chart too—cases where a sell signal was quickly followed by a buy signal. But that’s not a major problem. You might be out of the market or reduce your exposure for a month or two, but at least you managed your risk.
And that’s the key point here—risk management. All we can do is manage risk. So be careful, and let’s see how this develops in the months ahead. We’ll be monitoring it closely.
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The world of finance can be complex, with many technical terms. For explanations of financial terminology, try using the Investopedia dictionary.
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