S&P's Negative 200-Day May Be Positive for Stocks

In Tuesday's market mayhem, the 200-day moving average on the S&P 500 turned negative for the first time since last year, an ill omen to some.

However, Birinyi Associates took a look at the occurrences of the 200-day turning negative since 1945, and found that it's mostly preceded positive stock market moves in the next week, the next month, the next three months and even the next year.


"On average, over the next month the market is up 2.37 percent, and it posts gains about 78 percent of the time. It's totally counterintuitive. It's something people who are bearish...are going to say is a change in trend. When you look and this actually happens, that's not the case," said Cleve Rueckert of Birinyi Associates.

About 66 percent of the time the market was higher a year later, and was up an average 4.4 percent. It was higher in the first week 72 percent of the time, with an average gain of 0.5 percent. In the first three months, it was higher 68 percent of the time and higher six months later, 59 percent of the time.

Notable exceptions include the one we all remember — November 19, 2007. In that case, the S&P 500 was 1.4 percent higher a month later, but lost 40 percent the next year. Another was the year after Feb. 24, 2000, when the market was down nearly 8 percent a year later. However in that year, it was higher six months later, and had a gain of 10.7 percent.

On the positive side, the S&P was 13 percent higher a year after the 200-day turned negative on Oct. 6, 2005, and 21.6 percent higher a year after turning negative on June 27, 2006. In both those instances, the 200-day turned slightly negative for a very brief period, before the market continued to rally.

The S&P 500 has been below its 200-day moving average for weeks, but Tuesday's move in the 200-day was the first negative move — to 1112.216, from 1112.223, the day earlier.

"Our point is this happens in a bull market. Just because the 200-day rolled over doesn't mean the bull market rolled over," said Rueckert.

"We're still bullish," he said, adding the firm's year end target on the S&P is 1325.

(Wednesday Market Wrap: Dow Loses 10% in Q2; S&P Ends Below 1,040)

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