PERCENT ABOVE 200-dMA (Can you trade it? Maybe)
I have always suggested the answer to that question was
no, because the value at tops varies quite a lot. In October of 2009 the S&P 500 was
trading at nearly 21% above its 200-day moving average and the market didn’t
top out until April of 2010 and by then the %-above the 200dMA had fallen to a
more reasonable 12%. Clearly, the
bullishness reached extreme levels after the major bear market bottom in March
of 2009. Percent above the 200-dMA was
15% and 12% at the tops in 2011 and 2012 respectively. Since there’s a lot of variation I decided to
look at this from several different angles.
Statistical analysis shows that the most recent tops occurred
shortly after the time the standard deviation of the 200-day data set (for %-above
the 200-dMA) reached about 2-standard deviations above the norm. That means that the values exceeded 75% of
the data set. While that is interesting,
there is enough difference to make it a difficult value to use for investing
decisions (It was 2.3 standard deviations in 2011).
The trend in the 200-dMA is another matter. I think the downward trend in the peak values
of the %-above the 200-dMA shown in red on the chart indicates the S&P 500
is topping now. The peaks in the %-above
the 200-dMA coincide reasonably with the peaks in the S&P 500, though this
is far from an exact science.
I also looked at this question from a third
perspective. Since %-above the 200-dMA
is a reflection of sentiment, I combined the %-above the 200dMA with the
sentiment data in the NTSM analysis to produce the data shown green in the
chart above. Since the green data-points
tend to suggest a top when the value reaches 6.5% (the horizontal green line),
this too suggests the S&P 500 is topping, though you can make an argument
that we haven’t gotten to the top quite yet.
The above arguments suggest a top, but I still am running
daily numbers in the NTSM system and they remain neutral. There have been signals within the NTSM system
that have suggested a top and I will continue my discussion of a top later.
MARKET RECAP
Wednesday, the S&P 500 finished up 0.4% to 1569 (rounded).
Wednesday, the S&P 500 finished up 0.4% to 1569 (rounded).
VIX fell 3% to 12.70.
NTSM
Thursday, the NTSM analysis remained HOLD at the close. The numerical analysis has not yet confirmed
my “off-the-grid” top-call.
Sentiment is a sell; Price is a buy; and Volume and VIX are in
neutral. VIX is more negative today, so
perhaps the NTSM analysis will issue a warning next week.
MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500-1525),
due to my risk tolerance rather than the numerical NTSM analysis. To put it bluntly, I currently have no
tolerance for risk. (If I were strictly
following the NTSM numbers, I'd still be heavily invested in stocks.) My
reasoning may be found at…
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
