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The Bull Is Back: S&P500 Crosses Key Milestones

As we navigated through the tumultuous year of 2022, the Federal Reserve began raising interest rates to tighten inflation, leading to a bear market. This action affected various sectors and indicators, most notably the S&P500 (SPX), which spent most of the year beneath its 200-day moving average (MA) - a key indicator used by traders and analysts to assess the long-term market trend.


However, as we moved into 2023, a pivot was observed. Market bulls took the reins, driving a strong rebound, and 58 days ago, the SPX crossed above its 200-day MA (see the chart below). This is a significant indicator of potential bullish momentum, suggesting that investors' sentiment has been slowly but steadily shifting towards optimism.


SPX Above Its 200d MA


In another noteworthy development, the SPX achieved another important milestone today by crossing the 61.8% Fibonacci retracement level. For those unfamiliar, Fibonacci retracement levels are horizontal lines that indicate where potential support and resistance levels are likely to occur. They are based on Fibonacci numbers, a sequence of numbers where each subsequent number is the sum of the two preceding ones.


The crossing of this level is an important bullish sign. The 61.8% level is often considered the "golden ratio" in trading and can act as a strong signal that the previous trend (2021 bull market) is likely to resume.


SPX, Crossing 61.8% Fibonacci Level


But why is all this important? Looking back through a century of market data, it turns out that whenever the SPX has emerged from a bear market, stayed above its 200-day MA for more than 58 days, and breached the 61.8% Fibonacci retracement level, it has eventually moved to make new all-time highs.


SPX, 2020 Covid Crash


SPX, 2008 Bear Market


SPX, 2000-2003 Bear Market


SPX, 1987 Crash


SPX, 1981-1982 Bear Market


SPX, 1974 Bear Market


SPX, 1969-1970 Bear Market


SPX, 1966 Bear Market


SPX, 1962 Bear Market


SPX, 1959-1960 Bear Market


SPX, 1957 Bear Market


SPX, 1953 Bear Market


SPX, 1929-1932 Great Depression


In the annals of financial history, there have been two particular bear markets where the SPX remained above its 200-day moving average for more than 58 days, only for the index to subsequently establish new lows. These episodes unfolded during the 1946-49 and 1938-42 bear markets. However, it's vital to recognize a crucial distinction in these scenarios. During these market cycles, the extended stays above the 200-day MA were not accompanied by the index also surpassing the 61.8% Fibonacci retracement level. This absence of concurrent signals lends further weight to the importance of these two indicators aligning in signaling a potential uptrend.


1946 - 1949 Bear Market


SPX, 1938 - 1942 Bear Market


CONCLUSION


While past performance is not a guarantee of future results, this scenario has repeated itself enough times to warrant close attention. These milestones achieved by the SPX are critical, suggesting we may be witnessing the early stages of a robust bullish phase.


Of course, market conditions can change rapidly, and many factors can influence the market's direction. As always, it is important to carefully monitor market signals, maintain a diversified portfolio, and make investment decisions in line with your risk tolerance and financial goals.


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