SPX Closes Below its 50-day SMA, February Effect Reminder

Update: Drawdown figures added

I examined this exact same thing but didn’t extend my time frame long enough, so thanks to Wayne Whaley for this illuminating study. Here’s an excerpt from his Thursday update…

“…Saving the best for last, the S&P (1295.11) closed below its 50 day moving average (1300.97) for the first time since Sept 01, 2010  I scanned for all occasions going back to 1970 where the S&P closed below the 50 day average for the first time in 3 months.  In 24 out of 28 occasions, the S&P was higher one quarter later.

When the S&P Closes Below Its 50DMA For First Time in 3 Mts
DATE     %CHG NEXT QUARTER
19710517  -0.70
19720425   0.45
19750404  16.67
19750722  -0.81
19760409   4.61
19791009   2.27
19800305   1.48
19800929   9.30
19821215  11.93
19830712   2.47
19860122  19.13
19860515   5.43
19870413   7.71
19870904 -29.30
19890925   0.93
19910429   2.54
19960110   5.85
19961216  10.01
19970319  14.28
19970815   3.06
19980526  -0.90
19990209  10.60
20030801   7.20
20040310   1.44
20050823   3.94
20060203   3.47
20070227   8.34
20091028   4.02

#UP-DN  =  24- 4
AVG%CHG =   4.48
MED%CHG =   3.98
10%MOVES=   5- 1

If you haven’t already, email wayne@witterlester.com and request to be added to his email list.

While on the subject of the longer-term outlook, it seems like a good time to post a ‘February Effect’ reminder. This is a variation of the traditional ‘January Effect’ signal that points to an up year when January finishes positive. That’s certainly a worthwhile signal to monitor, but the February Effect takes it one step further by stating that when the S&P is YTD positive at the end of February, the market will finish the year higher than February’s close. That’s a significant difference because it’s not just calling for an up year, it’s forecasting further gains over and above the gains of the first two months. Over the last 70 years, it has an impressive track record…

S&P500 YTD Positive End of February
02/28/11… S&P500 ??? at year-end
02/28/06… S&P500 +10.8% at year-end
02/27/04… S&P500 +5.9% at year-end
02/26/99… S&P500 +18.7% at year-end
02/27/98… S&P500 +17.2% at year-end
02/28/97… S&P500 +22.7% at year-end
02/29/96… S&P500 +15.7% at year-end
02/28/95… S&P500 +26.4% at year-end
02/28/94… S&P500 -1.7%  at year-end (*)
02/26/93… S&P500 +5.2% at year-end
02/28/91… S&P500 +13.6% at year-end
02/28/89… S&P500 +22.3% at year-end
02/29/88… S&P500 +3.7% at year-end
02/27/87… S&P500 -13.1%  at year-end (*)
02/28/86… S&P500 +6.7% at year-end
02/28/85… S&P500 +16.6% at year-end
02/28/83… S&P500 +11.4% at year-end
02/29/80… S&P500 +19.4% at year-end
02/28/79… S&P500 +12.1% at year-end
02/27/76… S&P500 +7.8% at year-end
02/28/75… S&P500 +10.5% at year-end
02/29/72… S&P500 +10.8% at year-end
02/26/71… S&P500 +5.5% at year-end
02/28/67… S&P500 +11.2% at year-end
02/26/65… S&P500 +5.7% at year-end
02/28/64… S&P500 +8.9% at year-end
02/28/63… S&P500 +16.7% at year-end
02/28/61… S&P500 +12.8% at year-end
02/27/59… S&P500 +8.1% at year-end
02/28/58… S&P500 +35.2% at year-end
02/28/55… S&P500 +23.7% at year-end
02/26/54… S&P500 +37.6% at year-end
02/28/51… S&P500 +9.0% at year-end
02/28/50… S&P500 +18.5% at year-end

In 31 out of 33 occurrences (94%) since 1950, the S&P finished the year above February’s close, averaging a gain of 14.5%. That kind of gain this year would put the S&P in the 1500 area at year-end.

Update: Here’s the same table along with the S&P’s maximum drawdown from February’s close through year-end. Of the 33 occurrences since 1950, only three saw a drawdown in excess of 8%, suggesting an area of long-term support in the 1200-1250 region…

S&P500 YTD Positive End of February
02/28/11… S&P500 ??? at year-end
02/28/06… S&P500 +10.8% at year-end, max dd 4.8%
02/27/04… S&P500 +5.9% at year-end, max dd 7.4%
02/26/99… S&P500 +18.7% at year-end, max dd 1.8%
02/27/98… S&P500 +17.2% at year-end, max dd 12.0%
02/28/97… S&P500 +22.7% at year-end, max dd 7.2%
02/29/96… S&P500 +15.7% at year-end, max dd 5.4%
02/28/95… S&P500 +26.4% at year-end, max dd 1.6%
02/28/94… S&P500 -1.7%  at year-end, max dd 6.7%
02/26/93… S&P500 +5.2% at year-end, max dd 2.5%
02/28/91… S&P500 +13.6% at year-end, max dd 0.9%
02/28/89… S&P500 +22.3% at year-end, max dd 0.8%
02/29/88… S&P500 +3.7% at year-end, max dd 7.1%
02/27/87… S&P500 -13.1%  at year-end, max dd 23.8%
02/28/86… S&P500 +6.7% at year-end, max dd 2.1%
02/28/85… S&P500 +16.6% at year-end, max dd 2.6%
02/28/83… S&P500 +11.4% at year-end, max dd 0.0%
02/29/80… S&P500 +19.4% at year-end, max dd 17.1%
02/28/79… S&P500 +12.1% at year-end, max dd 0.3%
02/27/76… S&P500 +7.8% at year-end, max dd 1.7%
02/28/75… S&P500 +10.5% at year-end, max dd 2.4%
02/29/72… S&P500 +10.8% at year-end, max dd 2.6%
02/26/71… S&P500 +5.5% at year-end, max dd 7.7%
02/28/67… S&P500 +11.2% at year-end, max dd 0.1%
02/26/65… S&P500 +5.7% at year-end, max dd 7.7%
02/28/64… S&P500 +8.9% at year-end, max dd 0.3%
02/28/63… S&P500 +16.7% at year-end, max dd 0.8%
02/28/61… S&P500 +12.8% at year-end, max dd 0.1%
02/27/59… S&P500 +8.1% at year-end, max dd 0.5%
02/28/58… S&P500 +35.2% at year-end, max dd 0.7%
02/28/55… S&P500 +23.7% at year-end, max dd 4.9%
02/26/54… S&P500 +37.6% at year-end, max dd 0.4%
02/28/51… S&P500 +9.0% at year-end, max dd 3.9%
02/28/50… S&P500 +18.5% at year-end, max dd 3.1%

Categories : Archived EOD Commentary, End-of-Day Commentary

 Print This Post