Data Shows Institutions Remain Bullish On Stocks No ratings yet.

The first sign of a possible cyclical stock market bottom came with a rare breadth thrust covered in January 2019 The same “keep an open mind” message applied to the S&P 500’s (SPY) stand at an upward-sloping 200-week moving average, which aligns with a possible major cyclical bottom within the context of a secular trend.

If the S&P 500 was in the process of resuming a secular move, we would expect to see signs of intermediate-term trends turning up in a bullish manner. Since the December 2018 low, many forms of evidence have aligned with the bullish hypothesis, including the S&P 500’s (IVV) 11-month moving average closing back above the 13-month moving average at the end of February.

Chris Ciovacco - S&P 500 11 13 month moving averages - stock market - investing

Historically, when the S&P 500 made a stand at an upward-sloping 200-week (first chart above) and subsequently had a bullish cross with the 11 and 13-month moving averages (second chart), the S&P 500 (SCHX) was positive in every case six months to five years later.

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If the S&P 500 (VOO) does indeed go on to follow a path similar to the historical cases above and given global stocks have a high correlation to U.S. markets, we would expect to see other forms of bullish evidence around the globe (VT).

Global Evidence: Align With Or Contradict?

Dow Jones tracks sixty-two global, regional, and country indexes that are available on Does global (ACWI) evidence align with or contradict the current secular thesis? Given over 95% of the indexes shown below have returned to a bullish-cross state via the 11 and 13-month moving averages, it is difficult to answer that question in any other manner other than “aligns with the other bullish evidence.”

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Subsequent S&P 500 Performance Following Global Signals

Since we are using the table above as confirming evidence for previous signals seen for the S&P 500, it might be helpful to know how the S&P 500 performed following a bullish 11/13-month moving average crossover on the Dow Jones Global Index, which appears in the table above. As shown below, the S&P 500 performed well following past signals in the Dow Jones Global Index, with 100% of the cases producing positive S&P 500 outcomes two years from the date of the signal. The average two-year S&P 500 gain was 30.43%.

Realistic Expectations

The signals above speak to longer-term odds and tell us very little about what may or may not happen in the coming days and weeks. Even under a longer-term bullish scenario, the markets could still experience significant trade-related volatility in the short run.

Day By Day

If the evidence begins to shift in a material manner, we must be willing to reassess the odds of good things happening relative to the odds of bad things happening. The data above also aligns with high cash balances and record outflows from equity-based funds.

Disclosure: I am/we are long SCHX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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