How Concerning Is The Rapid Push Above S&P 500’s 50-Day?

Valid Concern About Market’s Rapid Ascent

The following logical question was posed on Twitter this morning:

The short answer is “yes, it is a relevant concern looking out days/weeks.” However, it is also worth taking a look at some historical examples. History helps us keep an open mind about all outcomes (bullish and bearish). Therefore, in today’s post, we will answer one question and one question only:

Is The Distance Between The S&P 500 And Its 50-Day A Showstopper?

White Space Between Price And 50-Day

The S&P 500 broke above its 50-day moving average 28 calendar days ago.

Since then, it has risen at a rapid pace, leaving the 50-day in the rearview mirror. The 2015 market has three characteristics that allow for a historical comparison:

Can We Find A Similar Historical Example?

The answer to the question above is “yes”. In 1998, the market had a waterfall plunge, a double bottom, and quite a bit of white space between a rising 50-day moving average and the S&P 500 (price).

The charts below are not a commentary on 2015, nor is it a comparison of 1998 and 2015. Remember, the purpose of the exercise was to answer one question. We understand “1998 was different”. That argument applies to all historical references made about the economy and markets. No two periods in human history are alike.

What Happened Next In 1998?

In 1998, rather than “filling the white space” and returning to the 50-day moving average, the S&P 500 rallied for several months in 1998 before revisiting the 50-day in February 1999.

1998: Did The Rally End Near The 50-Day?

The answer to the question above is “no”, stocks continued to rally until July 1999. Notice during the latter stages of the rally price did tend to congregate around the 50-day moving average.