Worried about the recent rally in U.S. stocks? Currently the market is 3.3% above it's 50-day moving average. It is both extended and overbought. Not to worry...this does not necessarily pose any risk of a major correction. We have found, and intuition tells us, that stock and market prices revert to the mean. What if we thought of it as the mean reverting to the price? In the case of a moving average this is entirely possible. The rally is tapering off, and a period of consolidation (sideways trading) is probably more realistic than a sharp downside correction; also known as the Summer Doldrums.
The article merely states the obvious to anyone who understands what a moving average is. How's about something more substantial? Like historical rational or standard deviation considerations. Just saying the mean follows the price eventually is...obvious.
Marc
Posted by: marc | June 05, 2007 at 02:25 PM
It is my contention that this current rally since March will not end without 1 or 2 heavy volume up days.
I think the market changed after that 400 pt drop. The megacaps have come back to life and i think we will see bigger moves on the indexes now. We might have some kind of crazy 200 pt plus upday. How long since weve had one of those? Thats only 1.5% anyway, its bound to happen.
Posted by: Gareth | June 05, 2007 at 09:49 PM