Historical Precedent Need Not Apply
To understand where we're going, we need to appreciate where we've been
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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.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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