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ALERT: The S&P 500 is Now More than 5% Higher than its Trailing

As an update to our June 4, 2009 post entitled, “The S&P 500 Just Crossed its 200-Day Moving Average – So What”, I am pleased to report that the S&P 500 Index, with its closing level of 932.68 on July 15, 2009, has now crossed through our suggested momentum turning technical level of > + 5% of the 200-Day Moving Average. This represents the first change to this technical signal since November 26, 2007.

 

Source: Bloomberg, July 2009

To reiterate, our research study at Hennion & Walsh utilized historical data dating back to 1950 from Yahoo Finance and yielded the following results:

  • There have been 39 potential buy or sell signals based upon our self-imposed S&P 500 200-Day Moving Average 5% margin of safety criteria over this time period. This works out to a potential buy or sell signal roughly once every 1.5 years over this time period.
  • Every buy signal suggested by our self-imposed S&P 500 200-Day Moving Average 5% margin of safety criteria was followed by increases in the S&P 500 afterwards.
  • Measuring the cycle beginning with each buy signal and ending with each subsequent sell signal, using our self-imposed S&P 500 200-Day Moving Average 5% margin of safety criteria over this time period, the average increase in the S&P 500 over each cycle was approximately 42.7%.

So there is certainly reason for equity investors to be increasingly optimistic although I still believe that the market has rallied too far, too fast absent strong fundaments and the potential exists for a pullback in the markets before a solid and sustainable market recovery takes hold later this year.

Please note: Past performance is not an indication of future results. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. You cannot invest directly in an index.

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