Study: what happens next when the S&P is 2 standard deviations above its 50sma


Bullish momentum has returned to the stock market. As of last Wednesday, the S&P is more than 2 standard deviations above its 50 daily moving average.

This is typically seen as a bearish sign for the stock market because traders assume that the stock market will mean-revert downwards. It isn’t.
This is a sign that bullish momentum has returned to the stock market for the first time in many months. This bullish momentum usually carries forward to the upside in the next few weeks and months.
Here are the historical cases in which the S&P closed 2 standard deviations above its 50 daily moving average for the first time in 4 months, and what happens next to the stock market.
*Here are all the historical cases in the past 30 years.

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Conclusion

For the medium term, this suggests that the stock market’s correction is over and that the S&P will make new all-time highs in the coming months. Look at the 6 month forward returns: bullish 86% of the time.
For the short term, this suggests that the stock market will trend a little higher in the very short term (this week and next week).
This slightly goes against yesterday’s study, which suggested that the stock market would consolidate over the next 2 weeks.
Either way, I think these 2 studies come to the conclusion that:
There is a little bit of potential downside for the stock market in the next 1-2 weeks, but this downside is limited.
So medium term is bullish, and short term at worst is only a little bearish. Bulls have risk:reward on their side.
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