Monday, August 3, 2009

SPX 15% Over 200 Day Moving Average for First Time in Ten Years

Since I have not seen it mentioned elsewhere (which is not saying as much as it used to, given the expansion of the blogosphere), I thought it worth noting that in addition to closing over the critical 1000 level for the first time since November, the SPX also closed 15% above its simple moving average for the first time since 1999.

In the chart below, I show the daily closes of the S&P 500 index going back to 1970 (blue) and an overlay of the ratio of the SPX to its 200 day simple moving average (red.) With today’s close (red diamond), the SPX is now entering a level where mean reversion trading often makes the SPX vulnerable to a reversal. That being said, the 200 day moving average will be rising at a rate of about 0.40 per trading day for the next month or so, meaning that sideways action or even small gains will help to work off some of the excess in this ratio and bring it back toward a more typical range.

Frankly, I am beginning to think that if we do not see a significant correction begin between now and Friday’s employment report, that the SPX may make a quick move to 1100. Of course it is going to be awfully difficult to bet against the bulls until there is some evidence of an Achilles heel.

Those looking for a related upside target might be interested to know that the SPX has not closed 20% above its 200 day SMA since 1983.

For a related post, try:

[As an aside, I somehow feel compelled to note that I had no intention of making the chart look like the national flag of some new investor nation…]

13 comments:

Highgamma said...

"[As an aside, I somehow feel compelled to note that I had no intention of making the chart look like the national flag of some new investor nation…]"

It really does. Let's call it Volgaria!

Anonymous said...

I think Bullgaria is more appropriate. Obviously it's a one party state where all the bears have been exterminated.

nester said...

I nominate "Euphoria." In fact I want to relocate to there as the Depression talk around here has got me down.

Graham said...

Bill, Can this be done in Stockcharts? Thanks

Anonymous said...

looking for the pullback = waiting for godot.

spanky said...

OK, now I get it. Because the US is coming out of recession it means the indexes can't fall. That apparently is some sort of mandate.

Anonymous said...

Everyone is waiting for a correction. May not happen and spooz 1100 could happen in a heartbeat!

Anonymous said...

Bill, many people have wondered about the lack of volatility. Would it be possible that it may be related to the missing GS trade systems secret? The Russian programmer first went back to Russia for help and then we seem to know that there is at least one copy missing in Europe. Naive thoughts of my part, perhaps...

Celal Birader said...

We've also never had QE before ... this thing could go 50% above the 200dsma

HeadlineCharts said...

Hi Bill, I'm trying to make a blogger comeback with a new link headlinecharts.blogspot.com.

Paolo said...

actually this chart is telling me we can go much higher than here...everytime the SPX was below its 200dMA by a relevant amount it has bounced above it by a similar amount. COnsidering we have gone 40% below the 200dMA (historical record) at the last market bottom we can now easily go much higher now...

paolo

Anonymous said...

If you look at the past ten years then 15% is warning for a pullback, but looking back to 1920 on the DOW, 18% - 22% over the 200SMA have been common peaks for this measure.

In March, the Dow was 33% below the 200SMA. In my opinion, the most comparabe bear market rally to the one we are currently in was the bear market rally of 1938. In November 1937, the Dow was 33% below the 200SMA and then rallied to about 22% over the 200SMA.

The obvious observation is that the intense move down that we saw in 2008 is being matched by an equally intense move to the upside and there is likely more to go before this bear market rally is over.

Bill Luby said...

I love the names. In a close ballot, I think Bullgaria is going to have a plurality here...

Graham, I do not believe StockCharts has the capacity to do any ratios other than one ticker to another (i.e., no moving averages or other studies can be rolled into a ratio.)

Regarding GS and volatility, I think the media reports have assumed more about the value of the missing code than is likely the case -- and as a result, I think reading anything into this event and volatility is probably a stretch. Of course we will have to see how many $100+ million trading days GS has in the current quarter...

Paolo, so far your take looks to be spot on.

Anon, regarding the extended history of the 15% differential, you are correct vis-a-vis the DJIA and the Depression-era data. Of course, the SPX only goes back to the 1950s.

Finally, last and certainly not least...welcome back Headline Charts! I have missed your excellent work and am delighted to have you back in the blogosphere.

Cheers,

-Bill

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