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The Dow Is More than 2000 Points Above Its 200-Day Moving Average

Posted by hkarner - 23. Februar 2017

Date: 23-02-2017
Source: The Wall Street Journal

Chartwatchers take note: The Dow Jones Industrial Average just did something it’s never done before.

The blue-chip index that holds names like Goldman Sachs Group Inc. and Boeing closed more than 2000 points above its 200-day moving average for the first time in its 120-year plus history, according to WSJ Market Data Group. The Dow closed at 20743 on Tuesday, while the gauge of its price trend was at 18688.32.

The lofty heights reached by the Dow relative to its 200-day average is a sign of how quickly the market has jumped in recent months, forcing the moving average to play catch-up. Some also see it as a sign that the market is getting ahead of itself and could be poised to reverse back toward its longer-term trend line, and caution about similar signals from the S&P 500.

dj-moving-averageInvestors often look to the 200-day moving average as a barometer of the market’s underlying price direction. When the index crosses above its 200-day moving average, it’s thought to be a sign of gathering momentum, and when it crosses below, the market is considered to be losing steam.

Then there are times when the market is so far above its price trend that it reaches historic proportions. The Dow closed at 17888 on Nov. 4, just before Election Day, and has climbed 16% since as investors have bet on the prospect of business-friendly policies from the new administration.

The record 2000-point divergence for the Dow is, of course, partly a function of the index’s climb over time. The higher the index level, the less each point means on a percentage basis. The Dow closed 11% above its 200-day moving average on Tuesday, a differential that’s high on a percentage basis, but not unprecedented. It was last topped in May 2013, according WSJ Market Data Group.

Looking at the difference does a surprisingly good job of tracking the market’s peaks and valleys. The Dow was 1974.92 above its 200-day moving average in 1999 as the market topped out at the peak of the tech bubble. It traded nearly 4000 points below the 200-day in 2008 as markets tumbled during the financial crisis.

As recently as a year ago, the Dow was trading more than 1000 points below its 200-day moving average, but it’s up more than 32% from its 2016 low last February.

The S&P offers a similar snapshot of the current momentum-driven rally. The index closed Tuesday at 2365.38, which is 190.69 points or 8.8% above its 200-day moving average of 2174.69. On a point basis, that’s the biggest spread since April 1999. On a percentage basis, that’s the biggest since January 2014, according to WSJ Market Data Group.

Technical analysts at Strategas Research Partners, led by Chris Verrone, pointed to the S&P’s climb relative to its moving average in a Wednesday note, suggesting that while the deviation is large, it hasn’t reached the 12%-to-14% range that marks a “statistically significant overbought signal.”

“We wouldn’t rule out a pause or consolidation, but with the new high data broadening out and credit conditions still supportive, it’s difficult to find much evidence of a major problem brewing,” they wrote.

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