NASDAQ Sep 22nd 2008: 2,179 - Sep 22nd 2009: 2,146
Where has the year gone? Looking at the two market dates you would think very little happened over the intervening period, except for the almost 50% drop, 100% rally the market has endured this past year. So what has gone and what might we expect to come?
Last
June I took a look at the S&P and studied the relationships between the 20-day, 50-day and 200-day MAs and the index. In June I concluded:
The take home lesson is for the next month or two further downside is not just likely but probable; only in 2003 did a rally develop soon after the match. For the other five of the six matches the S&P lost between 7% and 30% of its value before it finally turned around.
From a buyers perspective there is little incentive to be long S&P futures or stocks until a firm break of the 200-day MA occurs.
The good news for bulls is once the S&P gets past the 200-day MA there is likely to be a very tradable rally.
In
October 2008 I followed up with
# We are likely a couple of weeks from a bottom, but it is not impossible for this to take longer
# During this period the market will see sharp losses, perhaps trimming 10-20% off where the markets lie now (Monday will be the start)
# The subsequent rally will be short lived and will morph into a retest of the low
# The retest will be the time to buy heavy
# A significant bull market has a good chance of emerging from the quagmire - remember markets lead economic news.
In November I talked about a potential "
Obama bottom" and then concluded
The worst looks to be behind us but we won't really know until we see what happens when the 200-day MA comes into range; a solid cut through and it will be up and away; however, a negative response to the 200-day MA test could produce a 1932/2002 style scenario in 2009 bringing with it another big step lower. If there is a silver lining to the worst case scenario it's that the current picture suggests we have already reached the extremes of the 2002 capitulation and not the pseudo-capitulation generated after the September 11th attacks.
So where do we stand now?
On the 16th of September 2009 the S&P was
20% above its 200-day MA,
8% above its 50-day MA and
4% above its 20-day MA; the largest difference between the 200-day MA and the S&P in recent weeks.
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