SPX Daily Chart Highlights Price Elevation Above 200-Day MA

When price elevates far above the 200-day MA for any index or stock, the start of a reversion to the 200-day MA should not be far behind. In 2010, the lofty heights led to the market drop that caused the Fed to announce QE2 in August-September 2010.  QE2 ran out of gas in 2011 as price printed elevated levels above the 200-day MA, and price adjusted downwards, the August 2011 waterfall crash dropping the SPX far lower. The Fed's Operation Twist program and ECB's LTRO 1 and 2 programs saved the markets in the back half of 2011. This was the first in-your-face coordinated global quantitative easing program with the Fed and ECB working together to create higher equity markets.

In 2012, Operation Twist and the LTRO 1 and 2 programs ran out of gas so the lofty perch above the 200-day MA once again identifies the market top. ECB's Draghi pledged to support the euro by all means necessary in July 2012 which placed a floor in markets. The ECB announced the OMT program (that has yet to be fully implemented) and the Fed, again in a coordinated step, said they will supply QE Infinity as far as the eye can see. This creates the market buoyancy and top in September-October 2012. The Fall 2012 sell off occurs as price seeks to revert back to the 200-day MA once again, but the Fed comes out with both guns blazing in December 2012 announcing QE4 Infinity and Beyond which replaces the Operation Twist program with outright purchases at 85 billion per month which is ongoing (the POMO Pump link in the lower right margin highlights the daily Fed money pumps that boost the equity markets each morning).

The price loftiness above the 200-day MA identifies the February top, and pull back, but a reversion to the 200 does not occur and the bulls recover. The BOJ starts printing money like there is no tomorrow, throwing their hat into the global currency debasement ring. The BOJ actions (weaker yen) is the main cause for the bullishness in equities from March to the present as well as the recovery in the European bond market. Markets are simply moving higher on central banker easy money. The SPX prints another lofty level above the 200-day MA one month ago identifying another top and potential reversion to the 200-day MA, but, alas, the bears have the rug pulled out from underneath them once again.

That takes us to today.  Price is 1617.50 and the 200-day MA is 1465.42 resulting in a 9.4% price elevation above the 200.  Note that the reversions back to the 200-day MA should occur with more frequency such as the period from late 2011 through 2012.  The longest period where price moves above the 200 to where it reverts is from September 2010 through June 2011 with the QE2 pump, 10 months, which is a very similar situation to now. QE2 created an intense upside market push just like QE4 Infinity and Beyond, the ECB's OMT and the BOJ easing is performing now. Price moved above the 200 in November 2012 and remains above 7 months later longer than what would be expected to remain at elevated levels. The QE2 money pump printed the market peak in April 2011, about 8 months after price poked up through the 200-day MA. That would place the current markets at their peak using QE2 as a guide. With all the ongoing bullishness, it is doubtful that anyone expects a 9 or 10% reversion to the 200-day MA as the spring and summer play out. Further, the door is always open to an overshoot to the downside since price does not typically bounce directly off the moving average. It is not unreasonable to project a potential 7 to 15% equity market sell off as the months move forward. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.