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Reviewing My Bullish Calls In March 2009 at Trader’s Narrative

With the benefit of hindsight, lets take a look at my bullish calls in March 2009. I’m sure that persevering readers will remember a few of them. For example, the suggestion that we were about to witness a ‘bear trap’ - similar to what we launched the super-bull market from August 1982.

I also showed a chart of the rolling 10 year returns for the Standard & Poor’s 500 index. So at any point, that chart shows what you would have gained over 10 years (ex-dividend) had you invested at that time.

For me the most interesting, from a technical analysis point of view, was a deceptively simple indicator: how far prices are from their simple 200 day moving average. In Another Reason We’ve Seen the Market Low I suggested that prices deviate from their long term trend, sometimes extremely but that eventually, they revert back and the cycle begins again. Here is the updated chart:

SPX percentage from 200 moving average long term chart updated July 2009

On March 9th 2009, the S&P 500 was stretched to the downside to an extreme degree that we had not seen in a long, long time. Although we can look at the difference between prices and the long term average as points, this isn’t helpful over time. So instead we normalize and express it as a percentage. So in early March, prices were below their long term trend by more than 36%!!

We’ve since recovered and are trading almost 12% above the 200 day moving average. Of course, the spring rally had already begun by the time I wrote about this market dynamic on March 31st 2009. To be exact, by that time, the S&P 500 index had already rallied 18%. But even then it wasn’t too late to jump aboard.

Looking ahead 60 days from the extreme posted in March 9th of -36.53% distance from the 200 day moving average, the Standard & Poor’s 500 index rallied a total of 39.65%. So the record since 1960 is:

  • 7.95%
  • 10.03%
  • 12.93%
  • 10.72%
  • 6.14%
  • 9.54%
  • 8.3%
  • 20.9%
  • 39.65%

For an average 60 day return of 14%. The latest recovery is by far the largest in our time period lookup. No doubt due to the fact that we had two dates close together when prices were pushed lower in a panic: November 20th 2008 (-39.79%) and March 9th 2009 (-36.53%). The other precedent of this was in 2002 just as that bear market was breathing its last: July 23rd 2002 (-26.98%) and October 7th, 2002 (-23.84%).

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2 Responses to “Reviewing My Bullish Calls In March 2009”  

  1. 1 Stefan

    Here is a longterm chart showing Dow Jones from 1929 and the distance from 200 moving average. I haven´t updated it so it´s from early March.

  2. 2 Benjamin Burack

    The main hole in this argument is that the moving averages are just that: moving averages. A large portion of the 200-day MA now consists of days since March, when you made your call. Even if the market hadn’t moved off the March prices at all and stayed flat, within a couple more months they would have reverted back to their 200-day MA, or rather, the 200-day MA would have come down to the prices.

    So yes, prices and 200-day MA will tend to revert back to one another, but this is mainly because the moving averages follow the prices, not the other way around.

    That said, your March call looks pretty good at this point. (Although whether this is truly the start of a new bull market or not is definitely debatable.

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