Stocks (S&P 500) Retreat from 200-Day Moving Average
The 200-day moving average is a staple among investors, market-watchers and the financial media. It’s also one of the tools utilized most heavily by technical analysts. For the uninitiated, the 200-day moving average is simply the running average (mean) of daily closing prices for the past 200 trading days. It’s an unassuming indicator that looks just like a squiggly line (as many technical indicators do). And it doesn’t really seem like it would be very helpful in forecasting market price turns. But uncannily, it often is. We saw it just this past week as stocks (S&P 500) turned down from the 200-day moving average.
Stocks Turn at Major Moving Averages
A quick look at any historical chart shows how major market turns often occur at or near the 200-day moving average. In recent history, since mid-2016, the S&P 500 has touched and risen off its 200-day average (as support) at least five times during a long and strong uptrend. After the index broke down below that uptrend in October through December of last year, the moving average then became resistance. And this past week, the S&P 500 rose to challenge that resistance. From the underside, price reached up to touch the moving average on Tuesday before turning back to the downside starting on Wednesday. This represented a classic retreat after a prolonged rally, where the 200-day moving average served as major resistance.
S&P 500 in Technical Limbo
Now, the S&P 500 is flailing and consolidating between its 200-day moving average to the upside and its 50-day moving average to the downside. Typically, the index tends to break out in due course from such positions of technical limbo. Key market drivers now and in the near future revolve primarily around U.S. trade conflicts, mostly with China but also with other regions, including Europe. As company earnings season begins to wind down in the weeks ahead, the S&P 500’s direction of breakout should primarily be determined by developments in these trade and tariff negotiations.
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Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Chief Market Strategist at The Technicals
With more than two decades of experience as an equity analyst for several major research firms, Don has covered individual stocks (both technically and fundamentally) across a wide variety of sectors and industries, including tech, financial, and retail. He has been quoted regularly in key financial media like Bloomberg and Reuters. Contact Don