Evidence Of A Broad Swing In Global Stock Momentum
Chris Ciovacco | Dec 17, 2019 12:31PM ET
h2 INSTITUTIONS DRIVE MARKETS /h2
Institutions typically lead in the stock market and retail investors follow, which is why equity-based mutual funds and ETFs have seen record outflows in 2019 – but the stock market has still gone up. Institutions have been supporting the markets since the December 2018 low.
h2 THESE PERIODS ARE SIGNIFICANTLY DIFFERENT/h2Long-term trends can help us (a) monitor what institutions are doing and (b) assess the market’s risk-reward profile. The first chart below shows the S&P 500 before and after the major stock market peak in October 2007 and before and after the major stock market low in March 2009. The second chart shows the evolution of the S&P 500’s trend via the 11-month and 13-month moving averages.
The first monthly close with the S&P 500’s 11-month moving average (blue in chart above) below the 13-month moving average (red) came on April 30, 2008. Was the bearish signal helpful or too late? Helpful, given the S&P 500 closed at 1385 on April 30; it did not find a bottom until making an intraday low of 666 on March 6, 2009. Thus, after the 11/13 month bearish cross, the S&P 500 lost an additional 51.93%..
h2 A POWERFUL VISUAL THAT CAN ASSIST IN 2019/h2We selected a broad set of global stock indexes to illustrate what institutional shifts look like and how it can correlate to future stock-market performance. The table below shows global stock indexes that were in a bullish longer-term state using the 11-month and 13-month moving averages. Notice how the hard evidence looks significantly different before (May 31, 2007), during (May 31 2008 and August 31, 2008), and after (December 31, 2009) the financial crisis bear market.
Does 2019 look more like the concerning data on May 31, 2008 or more like the constructive data in late 2009? The answer is more like the constructive and bullish-leaning data in late 2009 (and it is not even close). The table below speaks to the longer-term outlook for stocks and tells us very little about the next few days or next few weeks.
Get The News You Want
In October 2007, the blue moving average is rolling over toward the red moving average, which is evidence of a waning trend. Today, we have seen just the opposite. The blue moving average recently turned back up and crossed the red moving average, which is evidence of a strengthening bullish trend. If large institutions thought the long-term outlook for the global economy was highly negative, the chart below would not look like it does today.
Another common rebuttal is “you should have compared today to October 2018”; we have done that on numerous occasions including in a week’s stock market video provides additional data backing up the “be open to more upside in stocks” thesis.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.