Wednesday, May 22, 2013

unusual? yes - unprecedented? no

The 2013 stock market rally seems to go on and on with nary a correction to speak of. This is very unusual behavior but as the charts above show it it certainly not unprecedented.

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.


Kelly Blaine said...

Carl....with all due respect, looking at historical SP500 charts alone is silly. The macro environment is completely different....from deficits to discount rates. There is absolutely no comparison on the MACRO level.

Kelly Blaine said...

Additionally.....the FED has been subsidizing the stock market since 9/11/2001. Its a fools game in can you find a NEW fool to buy stocks from you at higher prices. The FED had to test the market today with its semi-hawkish comments to see what would happen....Stanely Druckenmiller recently called for this short term melt-up (not sure its done yet) and then, hes very long term bearish.

Rob said...

My positive/negative number finally exploded today, May 22. I was saying it had to get up to at least 11 because that's where the last few important highs have gotten up to. We've been bouncing around 5 to 9 for a while. Today the shorts finally gave up, and my positive/negative number jumped to 14.57, a number I have never seen before in over a decade of watching these numbers. We got up to 2.70 back at the highs in 2007, and that was the highest ever at the time. So this kind of number is mind-boggling, and it scares me to think what it might be leading to. We may bounce around a little here for a week or two at the most as it falls back and then runs up to 14 again a time or two, but we are essentially at a very, very important top.

mike said...

Carl, thanks again for your comments, in reading your comments is it normal for the last leg up to match the first leg up? Or is that just what you believe will be the high at 1775 and then decide from that level ? Take care, Mike