After seeing how the US markets responded to the Dow touching its 200-day moving average, we would have to infer that many traders look to it as a better measure than the S&P 500. While we did notice that the S&P 500 encountered some resistance at its 200-day, we cannot deny the nearly perfect bounce the Dow Jones Industrial Average had off of its 200-day moving average (this using closing prices). With this in mind we did some further analysis looking at the Dow in relation to its moving averages, and their distribution through the current bull market (beginning on 10/9/02).
For starters, the 50-day spread is below average. This is not surprising seeing that in a bull market we would expect the index to remain mostly above its moving averages.
Surprisingly, the 200-day spread is only slightly below average. The 200-day spread at the beginning of the correction was 10%, or 1.35 standard deviations above average for this bull market.
Perhaps the most interesting point is the fact that the spread between the 50-day and the 200-day remains above average. The current spread of 4.9% is 0.66 standard deviations above the 2.1% average spread, to be exact. In our view, barring some outside forces such as the Fed, this would suggest that the market will trade sideways until the 50-200 day spread narrows.