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Home » Blog » 2016 » 05 » When Markets “Levitate” (Preview)
By Lawrence G. McMillan

We have often made note of times when a particular market is so strong that it closes above or below its 20-day moving average for long periods of time.  These are rather rare situations.  While they are occurring, it seems that the market is going to keep going in that same direction forever. A few bullish cases have lasted so long that it seems that the market is “levitating” above its moving average.  The last time this occurred was February-April of this year (Figure 1, yellow area).

Figure 1

But when the levitation ends, what happens then?  Does the market abruptly reverse direction, or does it have built-in momentum that carries it strongly on from there?  Even though we have often noted this phenomenon, we have never put together a statistical analysis chronicling the results.  This article finally analyzes this phenomenon.  We are only going to look at the Standard & Poors 500 Index ($SPX) in this article.  Other indices will have to be studies for another day...

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