Crossing SPX 1000 in 1998 vs SPX 2000 Today

The S&P crossed above 2000 for the first time Monday.

This brings to mind 1998, the year the S&P crossed above the 1000 milestone.

The 1990s are wrongly remembered as a period in the market where volatility was uniformly low and double digit annual gains came in easy succession. The crossing of the 1000 milestone is a case in point.

SPX first came within 2% of 1000 in early October of 1997. In the month before, it had risen over 9%. After attempting to close higher for 3 weeks, SPX instead dropped over 10% in late October. So much for low volatility.

It was back near 1000 by early December, 1997. It again failed to close higher and dropped 6% by the end of the month.

Weekly Market Summary

US indices have risen 8 of the past 11 days. SPX, NDX and DJIA have all gained about 5%. NDX and SPX made new all-time highs and DJIA is close to doing so.

This was an incredibly quick fall and recovery to a new high. Recall that in July, fund managers had their second highest equity overweight since 2001. After every similar situation, SPX typically fell 8% over 4 weeks and then took another 6 weeks to regain all of its losses. This time: a 4% fall in 10 days with a full recovery 10 days later.

This type of strength, as we have seen before, is usually followed by further gains. Two studies follow that demonstrate this tendency well.

A Short Term Watch Out For High RSI and Low Trin

In our weekend post (here), we specifically warned how a break back above the 50-dma for SPX has been a momentum kick off in the past. This has been when the long win-streaks have taken place (yellow). This remains the big picture view for SPX.

SPX has since risen 4 days in a row. There are two studies indicating that short-term (1-2 days) weakness is ahead, followed by at least one higher high.

What a Gallup Poll Tells Us About Equities

A lot of attention is being given to a Gallup poll showing that the general population is unaware of the bull market in stocks.  Only 24% knew the stock market had risen more than 20% last year. 30% said stocks were flat to lower last year.

Is their lack of stock market knowledge surprising?

It would be easy to poke holes at Gallup who famously called the comfortable victory for President Romney in 2012. But the Gallup poll on stocks is probably fairly accurate.

When polled, here are other things a third or so of Americans didn't know:

1. The name of the world's largest ocean, to the west of California.
2. The year 9/11 took place.
3. The name of the country the American Revolution was fought against.

And a third or so believe:

1. The earth is the center of the universe.
2. Ford Foundation, Rockefeller Foundation and Monsanto are trying to shrink the world's population using GMO foods.
3. Someone they know has been abducted by aliens.

Weekly Market Summary

The first half of 3Q is done. So far, it's been a mess for equities worldwide. Europe and RUT are down 5-6% and SPX and DJIA are negative. Only Nasdaq and emerging markets show gains.

In the US, only technology and health care have advanced; all the other sectors are in the red.

Surely the biggest surprise has been treasuries. After outperforming SPX by 680 bp in the first half of the year, treasuries (using TLT) have taken another 600 bp in just the past 6 weeks (purple bar, above).