The Dow closed below its 200-day moving average this week for the first time in two years.

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That ended the longest streak above the 200-day moving average since 1987. At 501 trading days, it was the seventh longest run in history.

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Data Source for all charts/tables herein: Bloomberg, YCharts, Stockcharts.com. Note: all data in this post is price data, not total return.

How common is a close below the 200-day moving average and what has it meant for the Dow historically? Let’s take a look…

• Since 1896, the Dow has closed below its 200-day moving average 35% of the time.

• The annualized return of the Dow after closing below its 200-day is -3.2% versus +9.7% for closes above it.

• The annualized volatility of the Dow after a close below its 200-day moving average is 22.4% versus 13.6% above it.

• In the worst 100 days in history (declines greater than 4.6%), the Dow was trading below its 200-day in advance 72% of of the time.

So what we find is higher volatility, lower average returns, and a higher probability of tail riskbelow the 200-day moving average. Over the past five years, we haven’t seen much of this as the Dow has traded above its 200-day moving average 90% of the time (vs. 65% historically).

This has been a boon for leveraged strategies as low volatility environments are the most conducive to using leverage (click here for our research paper on this). The 3X Leveraged Dow ETF (UDOW) was up 350% in the past five years versus a return of 86% for the unleveraged Dow ETF (DIA).

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Are the next five years likely to yield a similar result? Anything is possible but a continuation of such benign conditions seems unlikely.

On that point, the volatility environment already seems to be changing. In 2017, only 5% of days had an intraday range (high to low as a %) greater than 1%, a record low. In 2018 thus far, 56% of days have exceeded the 1% threshold, the highest since 2011.

Are the halcyon days in markets behind us? I don’t know, but with each passing day it’s become more clear that 2017 was indeed the best of times.