S&P 500's Tipping Point
- December 1998: 1250. On the way to 1574 in a 87% gain from the October 1997 lows.
- February 2001: 1250. On the way to 767 in a 51% drop from the December 1998 highs.
- November 2005: 1250. On the way to 1586 in a 107% gain from the February 2001 lows
- July 2008: 1250. On the way to 665 in a 58% drop from the November 2005 highs.
- December 2010: 1250. Closed with a 88% gain from the July 2008 lows.
2010 Trading PatternsThe S&P 500 saw a new norm in trading in 2010, with massive monthly moves. For example, the index lost 8.2% in May, while it gained 6.5% in December. Participation levels were below the historical norm as the year went into the close, with few sessions able to close outside of the previous session high or low with ease, and most sessions dominated by futures market trading that left the cash sessions to pick up the pieces. The dominant factor of 2010 trading was that S&P 500 futures moved hard when regional Asian and European markets made a break, as the index quickly became a barometer to test the risk tolerance and momentum in global trade. The volatile daily, weekly, and monthly movement created a new "normal" in trading patterns, with interconnected global markets buying and selling risk and balancing books on an hourly basis instead of a daily basis. Weekly chart closing prices were replaced with 8-hour closes in line with Asian, European and U.S. cash market closes.
Buy and Sell or Buy and HoldIf buy and hold has proven to be unreliable unless investors got lucky in picking tops and bottoms over the last 12 years, then buy and sell should continue to dominate trading patterns in the near term. However, most investors do not play the futures market nor do they play the cash premarket because of thin liquidity and the coin-flick approach to daily momentum swings. The long-term investment portfolio that has been designed to balance risk with a mixture of bonds and stocks has raised many questions as to its sustainability as a benchmark, and has led to an increase in traders and investors looking for correlated markets with leverage to offset the portfolio roller-coaster ride.