The S&P 500 is hovering just above its 200 day moving average right now.
When the S&P 500 flirts with its 200 sma but doesn’t break below it, it usually breaks below this moving average soon. This is a short term bearish sign for the stock market but has no medium-long term implications. The 200sma becomes a magnet for the S&P in the short term.
Here are the historical cases when:
- The S&P was above its 200 day moving average for at least 200 consecutive days, AND…
- 3 out of the past 4 days saw the S&P above its 200 sma without falling below it.
Here are the historical cases.
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- March 28, 2018 (current case)
- May 20, 2004
- March 4, 1994
- January 18, 1990
- January 25, 1962
- September 11, 1959
- July 2, 1951
Here’s what happened next to the S&P 500.
May 20, 2004
The S&P 500 bounced and then broke below the 200sma less than 2 months later.
March 4, 1994
The S&P made a small bounce and then broke below the 200sma 3 weeks later.
January 18, 1990
The S&P broke below the 200sma almost immediately. That was the bottom of the S&P’s “small correction”.
January 25, 1962
The S&P bounced and crashed below this moving average 2 months later.
September 11, 1959
The S&P broke below its 200sma almost immediately.
July 2, 1951
The S&P broke below its 200sma almost immediately. That was the bottom of the S&P’s “small correction”.
We can draw 2 conclusions from this study:
- The S&P will probably break and close below its 200sma very soon. This supports a previous study.
- A break below the 200 day moving average has no predictive value for the medium-long term. Sometimes the market makes a medium term bottom soon after it breaks below the 200sma. Sometimes the market falls much more below its 200sma. A breakdown is irrelevant for the medium-long term.