By Simon Maierhofer
The S&P 500 Index on March 23 fell to its bear-market low, closing 25.8% below its 200-day simple moving average (SMA).
On May 27, only 45 trading days later, the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.60% closed above its 200-day SMA. The chart below provides a visual of the speedy recovery.
The S&P 500 never snapped back quicker after falling below its 200-day SMA by more than 20%.
Even though I said in the March 26 Profit Radar Report that “[w]e anticipate a recovery toward 3,000 (for the S&P 500) over the next couple months and quite possibly new all-time highs in 2020,” the resilience of this rally surprised even me.
Does the speed of this snap-back rally suggest that the S&P 500 is on a fast track to new all-time highs?
Let’s look at historical precedents for clarity.
Since 1970, the S&P 500 fell more than 20% below its 200-day SMA and subsequently recaptured the 200-day SMA six other times (green lines, chart below).
At first glance, forward performance has been positive. The chart below graphs the one-year forward performance for each instance after the S&P 500 recaptured the 200-day SMA.
Half the time (three of six instances), the short-term performance was choppy, but 83% of the time (five of six instances), forward performance was positive three to 12 months later. The average six-month forward return was 8.9%, the one-year forward return was 14.7%.
Naysayers will be quick to point out that history never repeats itself. True, but it still can be an effective guide. My price target of 3,000 for the S&P 500, for example, was largely based on analysis of historical data.
In general, the tide buoys and sinks all boats, but a look at the various sectors that make up the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY +1.62% , which tracks the S&P 500, shows that some perform much better than others.