06 January 2009

More Than 80% of the S&P 500 Is Now Trading above its 50-day Moving Average. Whoopee?

406 stocks in the S&P 500 are trading above their 50-day moving average. Before today, over the past two years, there have been four episodes when so much of the S&P 500 (more than 80%) has traded above its short-term averages.

Click on the informative annotated chart to make it large and legible:

That's great, you say. The market has recovered quite a bit of ground, percentage-wise, since late November. And the market has done so well in spite of the continued onslaught of bad news (Madoff, GM/Chrysler, housing, unemployment; your pick).

The next chart shows what happened to the S&P 500 after reaching this milestone. You'll see that lately, nothing good has come after such overperformance:

Of the four times that more than 400 of the S&P 500 traded above their 50-DMA, the market broke down three times, and churned sideways one time.

If you're bullish, be careful.

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