Wednesday, May 22, 2013
unusual? yes - unprecedented? no
The top chart records the most extreme example of an uncorrected rally which I could remember since it made such an impression on me at the time. This daily bar chart shows the rally in the S&P 500 during the year 1995, the kick-off year for the internet bull market of 1995-2000. You can see that the S&P rallied all year without once dipping visibly below its 50 day moving average (green line in the chart).
The bottom chart is a daily chart of the S&P over the past 10 years with the 50 day moving average showing as a green wavy line (clicking on the chart should bring up a larger and more visible version). This chart encompasses the last two bull markets.
You can see that during the past 10 years the longest stretch between successive drops below the 50 day moving average during on ongoing bull market has been just about 6 months. The current rally from the December 2012 low is pushing against that limit. The odds are that sometime during the next month or so the S&P will dip below its 50 day moving average which currently stands at 1588 and is rising steeply.
Normally in a bull market the 50 day moving average acts as support and the market rarely spends much time below that moving average until the market market is over. In this instance there is also very strong support at 1587, the 2007 bull market top. So based on these considerations I'd say that a drop back to the 50 day moving average should begin soon but any such drop would be just a normal interruption in the bull market.
How much higher might the S&P go? Right now the obvious target for me is 1775. At that level the move up from the October 2011 low would equal the size of the first leg up in this bull market from the March 2009 low to the May 2011 high.