Volatility returned to the US equity markets in third quarter, with the S&P 500 dropping -6.9% and bringing the index to a -6.7% loss year-to-date. From the May 21, 2015 high to the August 25, 2015 low, the S&P 500 dropped -12.3%.
- A peak in S&P 500 operating earnings were an early sign of market tops in both 2000 and in 2007.
- While market peaks were within a few months of the earnings peaks, the actual market reversals into bear markets occurred 5-7 months later:
- In 2000, S&P 500 quarterly operating earnings peaked in 2Q00; the market peak was in March 2000 and the ultimate market
- Since 1995, the crossover of the 12-month EMA and the 20-month EMA have been reliable indicators of trend; while not perfect timing indicator for tops and bottoms, following this simple metric would keep investors on the right side of the trend. Of course, there is no way to know whether this will hold true in the current cycle.
- The S&P 500 has only traded below
“Well, I never heard it before, but it sounds uncommon nonsense.”
- Alice in Wonderland
- The S&P 500 has been submerged with a fairly negative trend setup since the August selloff, experiencing the death cross of the 50-day below its 200-day and trading below the important longer-term 12-month and 20-month EMAs.
- Recent price action had the appearance of a bottom, but the S&P 500 became mired in a volatile sideways trading range since August 21rst, fail