Decoding the Dow's 200-Day Crossover

The Dow, SPX, and SPY are trading above or near their respective 200-day moving averages -- but what will it mean for stocks?

Mar 11, 2016 at 3:30 PM
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The major market indexes have been on fire of late, with the Dow Jones Industrial Average (DJIA) and S&P 500 Index (SPX) both on track to close a fourth consecutive week higher. In addition, the Dow is on track to close above its 200-day moving average for the first time since late December, while the SPX is bumping up against its own 200-day. On a similar note, the SPDR S&P 500 ETF Trust (SPY) his poised to notch a close atop its 200-day moving average for the first time in 2016.

Recently, we found that pullbacks to the 200-day are among the best short-term buy signals. But what about crosses to the upside? Schaeffer's Senior Quantitative Analyst Rocky White put together the charts below, which compare Dow returns after a 200-day crossover and anytime returns, going back to 1900:

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As you can see, the Dow tends to outperform in most time frames following a crossover of its 200-day trendline. This is especially true in the first month, where the average post-signal gain easily bests the anytime (1.35% vs. 0.55%), as does the percent positive (61.9% vs. 58.1%).

What about the broader SPX? White created charts for that comparison, too, looking back to 1930. The S&P outperforms after a crossover in three of the four time frames, with the six-month return being the exception. However, it's worth noting the percent positive is slightly higher across the board on the anytime chart. 

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Finally, here are White's charts for the SPY. He provides the same two as he did for the Dow and S&P 500, and also includes a year-by-year breakdown, since there are only 11 signals dating back to 1994. From the looks of it, a 200-day crossover has not been bullish for the SPY, as its anytime returns and percent positive are better across the board. However, as Schaeffer's Senior VP of Research Todd Salamone recently noted, perhaps the SPY's 80-day moving average is the real trendline to watch

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