Some Historical Perspectives

By on July 17, 2010

The market has been volatile over the past several weeks and a couple of not-so-often seen events occurred. One was the “death cross” which occurred earlier this month when the 50-day moving average (MA) of the S&P 500 fell below its 200-day MA. Subsequent to that we saw the Dow climb 7 days in a row.

Mark Hulbert, at Marketwatch, studied the aftermath of these events. His findings on the death cross were that over the past two decades it hasn’t portended very much at all about future market performance, although it does indicate future relative weakness in the 85 times it has occurred over the past 114 years. The speculation is that, with the advent of computer technology, too many investors began following moving average systems which made them unreliable.

Surprisingly, Hulbert’s look at consecutive up days (specifically 6 in a row) showed the market tended to be stronger than normal for the next week and month.

Sources: Marketwatch “Death Cross”, Marketwatch “Momentum”

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