200-day Simple Moving Average(SMA) is an important number to look at. When the index surges way above 200-SMA is an indication of the sentiments are way too bullish or plunges way below it telling us "blood is on the street".
If you look at the chart, periods A and D were very strong bull run after years of consolidations while C was recovery period after extreme sold down.
Periods B & E were at the extreme bearish territory when the index plunged way below its historical 200-SMA(30-40%). For other normal times, index should continue to rest slightly on or above its 200-SMA. Here are some of the statistics that I extracted from the yahoo. Please note that this is only a very rough guide since I am lack of sophisticated tool to extract information like this.
We are about 20% above 200d-SMA now and slightly above historical average of 18%. If we are repeating the recovery of 1997/1998 financial crisis, the rebound could be very sharp after a series of corrections(more than 10% pull back). It can go up way above average and as high as 44%.
If sharp pull back is not materialize, then sideway move to take heat out of the system will be quite probable.
We are about 20% above 200d-SMA now and slightly above historical average of 18%. If we are repeating the recovery of 1997/1998 financial crisis, the rebound could be very sharp after a series of corrections(more than 10% pull back). It can go up way above average and as high as 44%.
If sharp pull back is not materialize, then sideway move to take heat out of the system will be quite probable.
I will assign a very small probability of the market can go below 200-SMA at this juncture since we have quite a good earnings season. Analysts were playing catch up gaming -- busy upgrading. Look at these two charts. The expectation is 15% earnings growth for 2010.
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