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When The Stock Market Goes Streaking at Trader’s Narrative

The momentum driving the equity market higher has been relentless. The stock market has basically gone streaking - climbing higher barely giving anything back. Depending on how you look define it, this is rather rare in the market.

For example, from late February through to mid-March, the S&P 500 had a 17 day streak where it climbed higher without so much as losing more than -0.25%. The broader market index, the Wilshire 5000, also went on a similar 10 day streak in mid-March. To find a similar span of time where the Wilshire 5000 went up relentlessly like that we would have to go back all the way to 1995. Positive streaks like these may sound like a great contrarian indicator but usually after experiencing them, the market tends to trundle along comparable to average returns.

What has me worried is not the market’s wanton streaking, it is that the percentage of S&P 500 index constituents is once again at an extreme high. On Tuesday, 90% of S&P 500 index stocks were trading above their 50 day moving average. The last time this breadth indicator was higher was back in mid-September 2009 at 93%:

percent SPX above 50 MA Mar 2010
S&P500 index chart Mar 2010

The momentum can be seen clearly when we look at the chart for the percentage of S&P 500 stocks above their 200 day moving average:
percent SPX above 200 MA Mar 2010

Based on this and other indicators (like the options trading activity and the amount of froth from speculative trading), I do think we are at or very close to a top here. The market may move ahead a bit more but like other times, it will quickly give that all back and more. As well, a simple resistance/support analysis of the S&P 500 finds the market very close to major resistance in the area of 1200. A similar resistance level is coming up for the Wilshire 5000 index in the 12,500 range.

By the way, we looked at the cumulative advance decline line for the S&P 500 index recently and today it closed at 13,213 - a new high for the year. So breadth is continuing very strong and much like the past little while, breadth continues to lead the market higher. If this is the silver lining for this indicator, then the grey cloud is that the cumulative AD line is now very close to 13,600-13,700 where it last crested in 2007.

While most are watching this unfold with mouths agape, when we look back through market history, the rally so far is not uncommon. Here is a chart showing all the past major rallies in the Dow Jones Industrial Index:

Dow Jones cyclical bull markets Mar 2010
Source: Chart of the Day

There have been 27 rallies over the past 110 years which is about 1 for every 4 years (hence the four year cycle). Almost three quarter of these rallies provided a return of between 30%-150% lasting from 200 to 800 trading days. If anything, the one year old rally we are seeing now is a tad on the low range both from a time and magnitude perspective.

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14 Responses to “When The Stock Market Goes Streaking”  

  1. 1 j'adoube

    >>Depending on how you look define it, this rather rate in the market.

  2. 2 Babak

    “this is rather rare” - typing too fast

  3. 3 piazzi

    look at any chart published by the FED regarding money created — that is rather rare as well

  4. 4 van

    I wonder what kind of correction allowance was used in the above chart? eg 5%, 10% etc

  5. 5 biscosc

    I’ve seen that chart of the day a few times and I really think it helps to put the big picture into perspective. Focusing on this big picture is the most important thing, rather than focusing on trying to time dips. Sure I’m going to sit through some 5 to 15% corrections but that is the price I’m willing to pay for catching the big move.

    I’d just say for people sitting this rally out, that’s fine, AS LONG AS YOU HAVE A PLAN B. Ask yourself, what will it take for me to change my mind? If you can’t answer that question I’d question your ability to succeed in the trading/investing game.

  6. 6 Wayne W


    You bullish dudes are starting to sound a bit giddy.

    re the % of stocks above their 50 day moving average, I have had great difficulty in trying to communicate my thoughts on these type indicators. Let me know, if anyone understands what I’m trying to convey. But just because an indicator can’t go higher, doesn’t mean that it’s corresponding index can’t. Especially if that indicator is bounded by 0 and 1, or x and y.

    When the market eventually peaks it will do so with 90-100% of stocks above it’s various n day moving average, but that doesn’t mean that if the number of stocks above it’s n day moving average is at it’s max levels, the market must go down. I commented on this in detail a couple of days ago and have alluded to such several times over the last 6 months.

  7. 7 bigmovingstock

    nice balanced commentary on a market that seems to have lost its marbles

  8. 8 Clarence

    “Stock prices have reached what looks like a permanently high plateau.”

    I’m going to re-read “Dow 30000″, then “Dow 36000″, “Dow 40000″ and finally “Dow 100,000: Fact or Fiction”.

  9. 9 biscosc


    I try to stay as unemotional as possible when it comes to the market. The keyword there is “try” because when it comes money it’s impossible to stay completely unemotional.

    Yes, I do understand what you are saying in your previous statement. This x number of stocks above a moving average is another oscillator that mostly fails in a trending market. If I had to try to time the market, in an uptrending market I’d rather use an oscillator to catch bottoms and in a downtrending market I’d rather use an oscillator to catch tops. It will always be difficult to use an oscillator to catch tops in an uptrend and bottoms in a downtrend.

  10. 10 Babak

    Wayne & biscosc, re the percent above moving average indicator, I don’t disagree with you. Right now however there is a confluence where this is agreeing with many other indicators which are based on other metrics. For example, options, Rydex traders, etc. I don’t necessarily like to rely on just one indicator for my needs but using the weight of indicators out there.

  11. 11 wayne w


    I went home short sps today.

    I didn’t mean to pick on your study as much as intending to make general market timing comments.

  12. 12 Babak

    Wayne, pick away, I don’t mind disagreements in the slightest - I rather welcome them as opportunities to learn. Whatever remnant of ego I once had has been mercilessly crushed by the market ;)

  13. 13 van


    my question was to Babak not you

  14. 14 toby

    “There have been 27 rallies over the past 110 years which is about 1 for every 4 years ”
    I am just wondering how do you define a rally, in terms of highest/lowest point of a certain period of time or something else?

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