S&P 500 Breaks 200DMA

The S&P 500 recently broke above its 200DMA. Here’s a look:

Last year I looked at the evidence of how well the indicator has worked:

So does the 200DMA work? The evidence suggests that it’s a pretty good indicator of future price performance. When the S&P 500 has been below the 200DMA, it’s dropped a total of about 20% over the equivalent of 27 years. In other words, the S&P 500 has been below its 200DMA about one-third of the time.
Historically, the best time to invest has been when the S&P is less than 1.7% below the 200DMA.
When the index is above the 200DMA, well, then everything looks much brighter. All of the market’s gain (and then some) have happened when we’re above the 200DMA which occurs about two-thirds of the time.

Although we’re above the 200DMA, the S&P 500 runs into a brick wall around 1227. I’ve mentioned the 1020/1130 trading range before, but it’s really making a strong stand.

Posted by Eddy Elfenbein on September 16th, 2010 at 1:45 pm

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