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Historical Precedent Need Not Apply


To understand where we're going, we need to appreciate where we've been


Editor's Note: This content was published in real-time on the Buzz & Banter (click for a free trial). It's being reposted here for the benefit of the

Gotta love Minyans, always watching each others' backs!

I shared a Buzz earlier as "food for thought" regarding the S&P 200-day moving average.

Lest you're lazy like I am, this was the vibe:

At the high of October 2007, the S&P was 15.5% above the 200-day moving average. Between 2003 and 2007, the maximum dispersion was 12.4%. Today, the S&P is 16.7% above the 200-day moving average.

Minyan Chad shot me a chart showing periods when the S&P traded 40% below the 200-day moving average. The only reading was in 1932 (-50%) and the post-crash rebound was 57% above the 200-day moving average. At the nadir of the recent (current?) crisis, the S&P was 40% below the 200-day moving average, as a point of comparison.

As further grist for the mill, the savvy seers at Bespoke Investment Group have a note out this morning that touches on a similar topic. They peaked at periods when the S&P traversed from 20% below the 200-day to 20% above.

Since 1928, it's happened three times--1932, 1938 and 1975--and each time, the S&P was lower one, three and six months later every time but--and this is a big 'ol but--the average return, one year later, was 13.3%, with positive returns two out of three times.

"If the S&P follows the historical script," they opined, "the typical fourth quarter rally could face some stiff headwinds."

I often say that we're in unique times--that FDR didn't know what a derivative was nor was more than 60% of Americans invested during The Great Depression--so historical precedent need not apply.

Given the debate on the current state, however, mis ojos son tus ojos as we fit the pieces together.


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