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Wednesday, 3 June 2009
S&P 500’s Rise Past 200-Day Average Signals Gains
The rally in the Standard & Poor’s 500 Index above its 200-day moving average is sending a bullish signal after the measure traded below the level for the longest period since the 1930s.
(Bloomberg) -- The rally in the Standard & Poor’s 500 Index above its 200-day moving average is sending a bullish signal after the measure traded below the level for the longest period since the 1930s.
The benchmark gauge for American equities added 2.6 percent to 942.87 yesterday, exceeding its mean price of 926.89 over the past 200 days on a closing basis, data compiled by Bloomberg show. The climb halted a 523-day stretch where the S&P 500 trailed the average, the second longest in history.
Harris Private Bank and Morgan Asset Management say the advance may indicate the bear market in U.S. equities that began in October 2007 is over, heralding more gains after a three- month, 39 percent increase. Analysts who base forecasts on price charts consider crossing above a moving average bullish because it shows stocks are rising faster than the long-term trend.
“That’s proven to be a fantastic signal,” said Jack Ablin, chief investment officer at Chicago-based Harris, which oversees $60 billion. “A lot of investors will view it as a bullish signal and will likely use that as a rationale to add exposure to the S&P 500.”
The S&P 500 rose 0.2 percent to 944.74 as a rally in health-care companies and optimism that the housing market is improving overshadowed concern share sales will dilute earnings at lenders seeking to pay back bailout funds.
The gauge rallied an average 21 percent over 12 months the last five times it crossed the 200-day mean after falling below it for a year or more, data compiled by Bespoke Investment Group LLC and Bloomberg show.
The steepest advance occurred in 1982, as the U.S. economy emerged from a 16-month recession.
After breaking a 374-day slump below its 200-day moving average on Aug. 23, 1982, the S&P 500 then added 40 percent over the following year, according to data compiled by Bespoke, the investment research firm based in Harrison, New York. Only once, when the S&P 500 rebounded above its 200-day average in January 2002, did stocks fall in the next 12 months, the data showed.
The S&P 500’s longest stretch below the 200-day average, an 838-day span between April 1930 and August 1932, was also followed by a 40 percent advance in the next 12 months.
“If we can break through and stay above, that would substantiate that the worst is behind us,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “That would not be a bear-market rally. It would be a true bull market.”
End of the Tunnel
The index’s gain since March has restored $2.8 trillion to U.S. equities as confidence increased that the first global recession since World War II is easing.
Stocks began to rise as the three biggest U.S. banks said they were profitable in the first quarter and S&P 500 companies beat analysts’ earnings estimates by a 2-to-1 ratio, according to data compiled by Bloomberg.
Overnight borrowing costs between banks determined by the London interbank offered rate, or Libor, have plummeted more than 95 percent since September as the U.S. government and the Federal Reserve pledged at least $12.8 trillion to end the worst financial crisis since the Great Depression.
Still, investors who waited for the S&P 500’s moving average to flash a bullish signal before buying stocks missed the biggest rebound for U.S. equities in seven decades. After surging almost 40 percent, the S&P 500 may rise just 8 percent in the next 12 months, based on the combined share-weighted price projections of more than 1,700 securities analysts, data compiled by Bloomberg show.
Earnings at S&P 500 companies, which have slipped for seven consecutive quarters, will decrease for two more before rebounding in the last three months of the year, according to analysts’ projections compiled by Bloomberg. That would be the longest streak of declines since the Great Depression.
Second-quarter profits may fall 35 percent, while third- quarter earnings may drop 23 percent, the estimates show.
“The more cautious investors may be stepping into the market, so speculators may use that as an opportunity to sell,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Management in Cincinnati. “To take the market to the next level, there’s got to be some sign that revenues are going to be increasing.”
The S&P 500 tumbled 57 percent from its record of 1,565.15 on Oct. 9, 2007, to its March low as the collapse of the subprime-mortgage market froze credit markets, triggered global bank losses of $1.48 trillion and caused the worst U.S. recession in half a century.
False Positive
Harris’s Ablin said he’s waiting for the index to rise another 5 percent before boosting his investments in stocks as a “cushion” against a false buy signal.
Investors using the indicator were misled in January 2002, when the S&P 500 rose past the 200-day average, ending a 463-day stretch below it, Bespoke data show. The index slumped 23 percent in the following year as investors speculated interest- rate cuts by the Fed wouldn’t be enough to revive profit growth. The S&P 500’s drop came after a 21 percent gain in 3 1/2 months.
David Heupel, who helps manage $60 billion at Thrivent Financial for Lutherans in Minneapolis, says he’s confident the S&P 500’s climb above the average is a reason to buy now.
“The question has been, ‘Was it a bear-market rally or the start of change?’” he said. “That was the start of a change. This market has more movement up.”
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S&P 500’s Rise Past 200-Day Average Signals Gains
2 June 2009
(Bloomberg) -- The rally in the Standard & Poor’s 500 Index above its 200-day moving average is sending a bullish signal after the measure traded below the level for the longest period since the 1930s.
The benchmark gauge for American equities added 2.6 percent to 942.87 yesterday, exceeding its mean price of 926.89 over the past 200 days on a closing basis, data compiled by Bloomberg show. The climb halted a 523-day stretch where the S&P 500 trailed the average, the second longest in history.
Harris Private Bank and Morgan Asset Management say the advance may indicate the bear market in U.S. equities that began in October 2007 is over, heralding more gains after a three- month, 39 percent increase. Analysts who base forecasts on price charts consider crossing above a moving average bullish because it shows stocks are rising faster than the long-term trend.
“That’s proven to be a fantastic signal,” said Jack Ablin, chief investment officer at Chicago-based Harris, which oversees $60 billion. “A lot of investors will view it as a bullish signal and will likely use that as a rationale to add exposure to the S&P 500.”
The S&P 500 rose 0.2 percent to 944.74 as a rally in health-care companies and optimism that the housing market is improving overshadowed concern share sales will dilute earnings at lenders seeking to pay back bailout funds.
The gauge rallied an average 21 percent over 12 months the last five times it crossed the 200-day mean after falling below it for a year or more, data compiled by Bespoke Investment Group LLC and Bloomberg show.
‘True Bull Market’
The steepest advance occurred in 1982, as the U.S. economy emerged from a 16-month recession.
After breaking a 374-day slump below its 200-day moving average on Aug. 23, 1982, the S&P 500 then added 40 percent over the following year, according to data compiled by Bespoke, the investment research firm based in Harrison, New York. Only once, when the S&P 500 rebounded above its 200-day average in January 2002, did stocks fall in the next 12 months, the data showed.
The S&P 500’s longest stretch below the 200-day average, an 838-day span between April 1930 and August 1932, was also followed by a 40 percent advance in the next 12 months.
“If we can break through and stay above, that would substantiate that the worst is behind us,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “That would not be a bear-market rally. It would be a true bull market.”
End of the Tunnel
The index’s gain since March has restored $2.8 trillion to U.S. equities as confidence increased that the first global recession since World War II is easing.
Stocks began to rise as the three biggest U.S. banks said they were profitable in the first quarter and S&P 500 companies beat analysts’ earnings estimates by a 2-to-1 ratio, according to data compiled by Bloomberg.
Overnight borrowing costs between banks determined by the London interbank offered rate, or Libor, have plummeted more than 95 percent since September as the U.S. government and the Federal Reserve pledged at least $12.8 trillion to end the worst financial crisis since the Great Depression.
Still, investors who waited for the S&P 500’s moving average to flash a bullish signal before buying stocks missed the biggest rebound for U.S. equities in seven decades. After surging almost 40 percent, the S&P 500 may rise just 8 percent in the next 12 months, based on the combined share-weighted price projections of more than 1,700 securities analysts, data compiled by Bloomberg show.
Too Little, Too Late?
Earnings at S&P 500 companies, which have slipped for seven consecutive quarters, will decrease for two more before rebounding in the last three months of the year, according to analysts’ projections compiled by Bloomberg. That would be the longest streak of declines since the Great Depression.
Second-quarter profits may fall 35 percent, while third- quarter earnings may drop 23 percent, the estimates show.
“The more cautious investors may be stepping into the market, so speculators may use that as an opportunity to sell,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Management in Cincinnati. “To take the market to the next level, there’s got to be some sign that revenues are going to be increasing.”
The S&P 500 tumbled 57 percent from its record of 1,565.15 on Oct. 9, 2007, to its March low as the collapse of the subprime-mortgage market froze credit markets, triggered global bank losses of $1.48 trillion and caused the worst U.S. recession in half a century.
False Positive
Harris’s Ablin said he’s waiting for the index to rise another 5 percent before boosting his investments in stocks as a “cushion” against a false buy signal.
Investors using the indicator were misled in January 2002, when the S&P 500 rose past the 200-day average, ending a 463-day stretch below it, Bespoke data show. The index slumped 23 percent in the following year as investors speculated interest- rate cuts by the Fed wouldn’t be enough to revive profit growth. The S&P 500’s drop came after a 21 percent gain in 3 1/2 months.
David Heupel, who helps manage $60 billion at Thrivent Financial for Lutherans in Minneapolis, says he’s confident the S&P 500’s climb above the average is a reason to buy now.
“The question has been, ‘Was it a bear-market rally or the start of change?’” he said. “That was the start of a change. This market has more movement up.”
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