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Technically, This Market has Legs

Posted by Adam Daniele, CNBC Market Analyst

On Friday, July 24th, the S&P 500’s 100-day moving average overtook its 200-day moving average, an event known to Wall Street technicians as a Golden Cross (a shorter-term average crossing a longer-term one, from below to above). A month ago, we saw another major Golden Cross, when the 50-day average moved above the 200-day average.

Historically for the S&P 500, there has been plenty of growth left in the market even after these events occur. The average 3-month gain after its 50-day moving average crosses its 100-day moving average is 2.7% while the average 6-month gain is 4.3%, with the index trading to the upside 61% and 67% of the time over the respective periods. The average 3-month gain after its 50-day moving average crosses its 200-day moving average is 9.3% while the average 6-month gain is 16.5%, with the index up 69% of the time for both periods. The average 3-month gain after the S&P 500’s 100-day moving average crosses its 200-day moving average is 1.8% while the average 6-month gain is 6.7%, with the index positive 64% and 67% of the time over the respective periods.

As of yesterday’s close, 75% of the S&P 500 companies had 50-day moving averages that were above their 200-day moving averages. The spread between the two was an average of 8.9% of the 200-day moving average. Genworth Financial , Ford Motor Co. , Office Depot , XL Capital , Tenet Healthcare , AK Steel Holding and Wyndham Worldwide Corp are leading the way, with 50-day moving averages that are more than 50% higher than their respective 200-day moving averages. Of course, many of these are trading off such low prices, thereby inflating the differential. A low denominator helps.

On the other hand, Eastman Kodak , Citigroup , Marshall & Ilsley and Regions Financial all have 50-day moving averages that are more than 30% lower than their respective 200-day moving averages.

Additionally, 88% of the S&P 500 companies have 50-day moving averages that are above their 100-day moving averages and 61% have 100-day moving averages that are above their 200-day moving averages.

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