Below is a picture of just how high the S&P 500 is above not only its 50-day moving average, but its 200-day moving average (using exponential moving averages).  Currently, the S&P 500 is 5% above its 50-day moving average.  In addition, it’s almost 12% above its 200-day moving average.

(CLICK CHART TO ENLARGE)

Looking back over the last three years, you can see that the current levels above the two key moving averages have served as important inflection points.  Just in 2012 alone, the S&P 500 experienced declines (starting at the vertical red lines) of 11% and 9% once the index was 5% above its 50-day moving average.  Looking at the 200-day moving average, we have to go all the way back to the beginning of 2011 to see a market this extended to the upside.

While these indicators don’t tell you if a bull market is ending or how far down the stock market will fall, they do help us determine if a stock market is stretched.  Think of it like a rubber band being stretched.  At some point, it will go back to its original form just like a market will tend to revert to the mean. And while I’ve been clear in the past that I do not believe the ultimate end is near for the stock market run, I do believe a pause in order.  So far though, each pause has lasted hours, not even days.  Every selling episode has been met with eager buyers.  So don’t get too bearish too quickly.

While I wouldn’t consider this indicator and all out sell signal, I would consider it simply a warning.  Keep in mind, based on simple mat,h that a market that simply moves sideways can cause this indicator to come back in to “normal” levels.  So, a selloff doesn’t have to occur.

And while the chart above only goes back three years, a longer term study reveals that markets became even more stretched than they currently are back in the 1990s.  During that bull run, the S&P 500 would often rise over 8% above its 50-day moving average and 15% above its 200-day moving average, higher than the current levels.  Therefore, only use this chart as a guide or a tool, not a buy or sell signal.

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Tomorrow, investors will be looking for confirmation that this better-than-expected jobs report was not just an anomaly with the release of the initial jobless claims report.  Last week’s report showed that 324,000 people filed for unemployment.  The Bloomberg consensus for tomorrow is 335,000.  Out of the 48 economists surveyed for the consensus estimate, two thirds of the estimates are within the range of 328,000 to 342,000. The highest forecast for tomorrow’s jobless claims number is 365,000, while the lowest estimate is 325,000.

Our featured chart today is a 10-year history of the initial jobless claims.  To smooth out the numbers.  a four-week moving average is shown.  As you can see from the chart, last week’s claims number of 324,000 was the lowest since early 2008, just prior to the financial crisis.

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As the party was getting underway, we noticed Mr. Buffett standing at the entrance to the store where only a few people stood talking casually with him, which surprised us both.  So, we decided to approach him.  I shook his hand, said a few words, and began to walk away not wanting to take up any of his time with other guests.  To my surprise, he pulled me back to him and told me not to rush off.  Perhaps it was my age and interest in meeting him that intrigued him, but he proceeded to ask me what I did for a living.  I explained that I was an investment advisor which obviously gave him a grin, and he asked me a few more questions which led to a short conversation I will never forget.  Trying hard not to take any more of his time, I began to walk away once again, and once more, he told me to wait a minute. He summoned the party photographer to take our picture together and right before the photographer snapped a picture, he leaned over towards me and said, “Let me pretend I’m giving you a stock tip.”  Of course, I was hoping for a real tip, but the memory of my conversation with him and the interest he took in me as a young investment advisor that evening was actually priceless.

Even though it was a brief encounter, it was still a thrilling moment for me.  I had only been an investment advisor and trading stocks for a short number of years, but had obviously learned about Warren Buffett and read about him for years. While I would’ve loved to have sat down and had a lengthy conversation with him for hours, being able to meet him and chat, even for a few minutes, was an honor.

I currently have the picture below hanging up in my office. I’m always amazed by the various reactions I get when people first see it.  Some will ask, “Is that your grandfather?”  Others, will say, “Is that Photoshopped?”  While most will ask, “Is that really Warren Buffett?”  Once I confirm who it is, people ask what he was whispering in my ear.  I just smile and tell them I can’t share that information.

The thing that has impacted me most over the years about my conversation with Warren Buffett was the fact that he was a genuinely nice person and truly interested in what I did for a living and why I was there.  He did not try to rush me off, or just appease me by taking a quick picture. He was actually the one that initiated the conversation and the picture opportunity.

Regardless of your personal opinion of Warren Buffett, it was a thrill for this young investment advisor to meet a true investing legend of our time.

This was a man that was chastised in the late 1990s for not owning technology companies because he claimed he wasn’t going to buy something he didn’t understand.  After the tech bubble, it seemed his popularity rose once again as he continued owning reasonably priced companies and purchasing them at opportune times while most were losing their shirts on overpriced technology stocks.

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