Friday, May 21, 2010

% of S&P 500 Stocks Below 50 Day Moving Average Approaches March 2009 Lows @ 6%

I've been posting this chart the past few days, and as of yesterday's close the % of S&P 500 stocks below the 50 day moving average has dropped from low 20%s to 6%. This far surpasses the lows of February 2010 and has us within sniffing distance of the worst days of March 2009, which appeared to bottom out around 5%. Once again this demonstrates how we are living in a "student body" left environment where individual stories mean little and you have to be "all in" stocks or "all out" based on the what the greater market is doing. We were sitting in the mid 90%s for a month straight (which was also abnormal) just 6-7 weeks ago.

May 2010 v February 2010

May 2010 v March 2009

As I was saying in winter 2009, if you are a reversion to mean investor you have to watch these rubber bands being pulled farther and farther from their static levels. Back then I was using a completely different measure which was how far below the 200 day moving average the S&P 500 had fallen to - of course that was history of a different sort (we reached a never before seen 40% divergence at the worst in March 09).

The reversal should be quite strong even if it's short term in nature but those who piled in yesterday anticipating the bounce are suffering thus far based on yesterday's close and the early action. Still looking for the same conditions mentioned almost daily (emotion, reversal, blah blah), but we are definitely pulling the rubber band sharply and like the Euro, even if downside continues in the intermediate term a short term relief bounce would not appear "too far" away.

S&P levels to watch today are the flash crash low of 1066, and then February 2010 lows of 1045. Assuming the flash crash did not happen, the lower of the 2 "gaps" creating by the rallies in February would have filled yesterday. This is also the first >10% correction since March 2009, as we're sitting at 12% on the S&P 500.

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