S&P500: Highest Level Above Its 200-Day Moving Average In 25+ Years ~ market folly

Thursday, September 17, 2009

S&P500: Highest Level Above Its 200-Day Moving Average In 25+ Years

Pardon the terse posts that only include a single chart lately, but they really speak for themselves. Hat tip again to the great folks over at Bespoke for generating this great research as always. They've highlighted the fact that the S&P 500 is now more than 20% above its 200 day moving average on the chart. Now, this would be all fine and dandy except for one thing: this hasn't happened in 25 years! The last time this happened? May 1983. What's even more interesting is that back then the market still continued to rally after breaching that threshold.

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This is yet another awesome fact to add to our statistics-that-make-us-cautious list (which by the way just keeps growing). After all, just a few days ago we highlighted that short interest is at the lowest level in over 2 years. Not to mention, many of the smart hedge fund minds we track on the blog have become skeptical of the rally as well, as legendary trader Paul Tudor Jones has called this a bear market rally. Additionally, other global macro firms like Clarium Capital are skeptical of the recovery.

Nevermind the fact that we are also seeing a multi-day rally of strange proportions. If the S&P were to close up 9 days in a row, that would be quite a rare occurrence. Pull up a chart of the S&P and you'll be a bit amazed. This feat has occurred a handful of times, with the most recent being in 2004 (thanks to tendollartommy for the data correction). Nothing goes up in a straight line. Well, nothing that isn't on LSD, ecstasy, bionic, turbo or whatever the kids are calling drugs these days. Then look at the rally on the chart below that preceded the current one. After going near vertical from S&P 880to 980, it still slowly chugged along up to 1010. While we don't think anyone would argue with the fact that the market is due for a pullback, it continues to defy odds and rationality. After all, the market can remain irrational longer than you can remain solvent. At the very least, we've become more cautious.

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Back on March 8th, 2009, we penned a piece entitled 'Ranting, Raving & Contrarian Signals' highlighting the ubiquitous negativity in the markets and noted that it might be a prudent time to take a contrarian viewpoint. Little did we know that our article would be published merely a few days after the market bottomed (for now at least). Now, with all the data we've been seeing, we are slowly starting to get the contrarian itch again. Maybe it's time to pen another piece, this time in the opposite direction. After all, the economy has completely recovered because Dennis Kneale said so, right?

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