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NorthmanTrader

Markets-Macro-Charts-Alerts-Technicals

Stretched

Just building on what we’ve been discussing recently: Things are getting stretched. The $SPX has now moved more than 10% above its 200 day moving average (MA). This has happened plenty of times before and as you are about to see it it’s not a market timing device, but it can inform in regards to risk versus reward.

So why is this worth watching? In context of what we discussed in Yearly Charts the reversion trade is becoming ever more of interest.

Here’s the recent history of $SPX versus its 200MA:

Disconnects can last, reversions always happen. The last time $SPX touched its 200MA was during the US election in November 2016. It’s been a while.

Now we see at its most stretched from there since the rally began:

Some historical references of potential interest:

2000:

2011:

2012:

I know what you’re thinking: Hey this can stretch higher. Yes it could. Doesn’t mean it has to. History says we will reconnect at some point. Maybe the 200MA will catch up or a visit comes sooner than anyone can think. It’s a 10% question at the moment.

More details in 2018 Market Outlook.

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Categories: Market Analysis

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