Is The S&P 500’s 200-Day Providing Some Insight?

November 10, 2015 by

bearbull1Chris Ciovacco:   The S&P 500’s 200-day moving average is commonly used to track long-term trends. All things being equal, the stock market bulls prefer the S&P 500 to remain above the 200-day.

The bears are more content when price drops and stays below the 200-day. As shown in the 2015 chart below, the S&P 500 has printed twelve consecutive daily closes above its 200-day moving average.

From a historical perspective, do rallies typically fail or succeed after twelve consecutive closes above the 200-day?

1990 – The Rally Continued

There are not too many historical cases in the last 30 years that featured a significant drop below the 200-day (7% to 19%) followed by a rally back above the 200-day. One case that fits the profile is 1990.

What happened after the twelfth consecutive close? Stocks tacked on an additional 33% between point A and point B.

1998 – The Rally Continued

In 1998, the S&P 500 slashed through its 200-day moving average, formed a double bottom, and then rallied back above its 200-day moving average for twelve consecutive sessions, which is similar to what we have seen in 2015.

What happened after the twelfth consecutive close in 1998? Stocks tacked on an additional 25% between point A and point B.

Does The Bigger Picture Have Bullish Characteristics?

This week’s stock market video takes a broader look at the market’s risk-reward profile.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.Video

2010 – The Rally Continued

After the 2010 “flash crash” correction, the S&P 500 was unable to post twelve consecutive daily closes above its 200-day moving average until mid-September.

What happened after the twelfth consecutive close in 2010? Stocks tacked on an additional 17% between point A and point B.

2011 – The Rally Continued

Calendar year 2011 saw numerous events that were similar to 2015; a consolidation period, a sharp plunge, a double bottom, and a rally back above the 200-day moving average.

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