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You Are Here: Home > Articles > Contributors > Zignals: 1974 again - except worse

Zignals: 1974 again - except worse
Dec 04, 2008

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Declan Fallon

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On November 20th the S&P closed at 752. In the context of the last fifty eight years this is the worst performance the S&P has ever recorded. In 14,368 data points, the past six weeks rank 14,349th to 14,368th with respect to S&P performance relative to its moving averages (20-, 50-, and 200-day MAs). On the day it closed at 752 the S&P finished 19.6% away from its 20-day MA, 33.8% from its 50-day MA and a staggering 65.4% from its 200-day MA. The only other year in recent memory to come as close was October 3rd 1974. Then the S&P closed 7.7% away from its 20-day MA, 16.6% from its 50-day MA and a comparably bullish 40.1% away from its 200-day MA.
For the month of December, taking the post September/October routs into perspective, 1987 was the only other year coming close to matching now. Then the S&P lingered 2% from its 20-day MA, 11% from its 50-day MA and only 25% from the 200-day MA (this was for December 10th 1987).

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Bears and worried bulls could look to December 1973 when the S&P traded 3% from its 20-day MA, 11% from its 50-day MA and 14% from its 200-day MA - only to see the following year perform even worse. Will this be the story for 2009?
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The most likely outcome is somewhere in between as the market drifts sideways as the moving averages 'catch up' to the market. One month on from my "Obama Bottom" article the S&P has completed the Obama unwind and should be in a position to rally from here into the early part of next year. But given the new boundaries of despair the S&P has set I wouldn't be betting big on it.
Just for interest, the best the market performed was November 3rd 1982 when the S&P traded 5% above its 20-day MA, 11% above its 50-day MA and 19% above its 200-day MA. Those numbers appear a million miles away from where the S&P stands now.
Have an opinion you would like to share? Make a call on your favourite stock. Here's the call spread for Bank of Ireland (BKIR)
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by Declan Fallon (Fallond Stock Picks)

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