Chart of the Day - Tuesday, January 21st, 2020

Today's Chart of the Day was shared in an article by Schaeffer's Investment Research. The S&P 500 is currently 11% above its 200-day moving average; the most extended it's been in about two years. While many take this as a sign that the market is overbought, Schaeffer's points out that it's historically been a bullish signal. The table on top shows the S&P 500 forward returns across multiple time frames, using the past 19 times that the index traded 10% above its 200-day moving average. The table below shows the typical returns for the S&P 500 as a benchmark. Not only were the average returns positive across each time frame when the S&P 500 was this extended, but they were also significantly better than the typical average returns. They go on to explain: "it’s not an indication of an overbought market. In fact, it has been a buy signal, and with the two-week average return 3.5 times higher than the typical average return, it doesn’t suggest waiting." For more, check out the entire article here.