Short-Term Traders, Start Your Engines

The next few weeks could be a choppy ride for stocks

by 9/7/2013 9:48:57 AM
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Indicator of the Week: 200 Days Above the 200-Day
By Rocky White, Senior Quantitative Analyst

Foreword: A milestone was hit last week on the S&P 500 Index (SPX). It has been 200 trading days since the S&P 500 last closed below its 200-day moving average. The chart below marks the dates since 2007 in which that milestone was reached. The last two times it happened, a sharp pullback ensued. However, the market quickly rebounded both times. The time before that was mid-2007, which was right before the market crashed. This week I'll look at occurrences over the past 40 years to see how the market typically behaves going forward, and see if we can gain any insight into what to expect from this point.

S&P 500 at 200 days above its 200-day moving average

Past Occurrences: The first table below shows the returns for the SPX once it has been above its 200-day moving average for 200 straight days. The second table shows typical returns for the index. This data reveals that the index does seem to underperform somewhat after such a lengthy streak above its 200-day moving average. The returns don't look catastrophic, but it does seem to be a point at which the index takes a breather from its uptrend.

S&P 500 Index above its 200-day for 200 days - returns versus the last 40 years

Here's a table showing the individual dates when the index made it 200 days above the 200-day moving average. The longest streak on record was in 1997, when the index went 525 straight days without a close below this trendline. We are currently in the fifth streak of this length since 2000. In the previous four occurrences, the index was down over the next three months. Hopefully we break that trend.

S&P 500 Index above its 200-day for 200 days - individual dates

Individual Stocks: So which individual stocks in the S&P 500 have been above their 200-day moving averages the longest? The list below shows stocks maintaining streaks at least twice that of the index (in other words, 400 days or more). Credit card companies Mastercard (MA) and Visa (V) top the list. Both stocks have more than doubled in value during the streak, as well.

Individual stocks with steaks above their 200-day moving average

This Week's Key Events: Retail Sales on Deck
Schaeffer's Editorial Staff

Here is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.

Monday

  • Consumer credit figures will be released on Monday. Plus, The Pep Boys (PBY), Hovnanian Enterprises (HOV), and Palo Alto Networks (PANW) will report earnings.

Tuesday

  • The NFIB Small Business Optimism Index is on the calendar for Tuesday, while Christopher & Banks (CBK), Coldwater Creek (CWTR), and Oxford Industries (OXM) will enter the earnings confessional.

Wednesday

  • Wholesale inventories data is slated for Wednesday, as well as the regularly scheduled weekly crude inventories report. Meanwhile, The Men's Wearhouse (MW) and Vera Bradley (VRA) will step up to the earnings plate.

Thursday

  • Thursday's economic docket includes weekly jobless claims, export and import prices, and the Treasury budget for August. Also hitting the Street will be earnings reports from Kroger (KR), Lululemon Athletica (LULU), Ulta Salon, Cosmetics & Fragrance (ULTA), and United Natural Foods (UNFI).

Friday

  • Winding up this week's round of economic data are retail sales and business inventories, along with the producer price index (PPI) and core PPI, and the preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index for September. There are no notable earnings reports scheduled for Friday.

And now a sector of note...

Gold
Bearish

While we continue to like the leisure sector as discussed in recent weeks, we have become increasingly wary of gold. If looking for a point at which to put on a short trade, now could be a good opportunity. Despite recent claims in the press that the yellow metal is back in fashion, we remain unconvinced. On the charts, the SPDR Gold Trust (ETF) (GLD) is sitting just below an area of multi-layered resistance. A 20% pop above its year-to-date closing low of $115.94 on June 27 is $139.13, which is also near the site of the ETF's 140-day moving average. GLD recently endured a massive rejection at this trendline, which proved to be very significant during gold's rally from 2009-2011. Additionally, in the options pits, buy-to-open volume remains low on GLD options. This fact makes the recent "rally" even more suspect, as strong option volume in the ETF has previously been consistent with positive price action. Finally, although just 7% of the 30 precious-metal names we track are perched above their respective 200-day moving averages, nearly half of all analysts' ratings are on the "buy" side.

Daily Chart of GLD Since November 2008 with 140-day Moving Average

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