Data Brief - S&P 500 Above 50-Day Average For 4 Months

Posted 12/29/10 at 11:55am EST by Jason Goepfert

 

 

One of the market's most outstanding qualities over the past few months has simply been the momentum.  It has thrown off bad news, extreme sentiment, bad breadth and negative divergences.

 

As a result, barring an almost incomprehensible decline over the next couple of days, the S&P 500 will have enjoyed four straight months without once closing below its 50-day moving average.

 

 

That's such a rare feat, we've seen it only one other time in the past decade, and that was more than 7 years ago.

 

Historically, once the streak reached 84 days, it took a median of another 19 days before the S&P closed below its 50-day average.  There was a wide variation in those results, ranging from 1 day all the way up to 173 days (in 1995).

 

The table below shows every instance since 1928 that the index managed to go four months without violating its 50-day average, along with its performance in the weeks and months ahead.

 

 

What stuck out when looking at the results is that the S&P's future performance seemed to vary quite a bit between those times when it was trading at or near a 52-week high at the time of the streak versus those times it wasn't.

 

So let's go back and look at the index's average results going forward when it had set a 52-week high over the past week, against those times it hadn't.

 

 

Pretty big differences there.  When the S&P was at or near a high, and it saw this kind of momentum, then over the next three months it sported a positive return 79% of the time (11 out of 14 occurrences).

 

Out of all of the 14 instances, there was only one of them that led to any kind of meaningful decline going forward...and that was way back in 1933.  Since 1950, there were 5 such streaks, and 4 of them showed positive three-month returns (the one negative was -1.2%).  When we see this kind of momentum, this close to a 52-week high, it has been very unusual to see a meaningful decline across any time frame.

 

When the S&P had not set a new high recently, then its three-month return was a very lackluster -1.7%, and it was positive only 23% of the time (4 out of 14 occurrences).  Since 1950, there were 10 streaks, and only 3 of them showed positive three-month returns.

 

 

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