Stock traders prepare for “dogfight” as S&P 500 remains below 200-day moving average
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A move above or below a 200-day moving average, an indirect indicator of changes in the long-term trend of an asset, is still closely watched by traders, but the long seduction of the S&P 500 at this key level as it recovers from its bearish. The stock market crash becomes a kind of fixation on Wall Street.
But even if the stocks return above 200 days, the record indicates that a bullish pursuit is far from guaranteed.
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“A break-up is not likely to happen easily and we expect air combat here around 200 days.”
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The focus on the 200 days could be improved by the fact that the average was 2,999.67 on Friday, just a mustache below a large round number.
“The fact that the S&P 500 comes out of a 35% rally and that this 200-DMA aligns with a good number of 3,000 makes this area particularly important,” said Kevin Dempter, analyst at Renaissance Macro Research, at a note Friday. . “A break-up is not likely to happen easily and we expect air combat here around 200 days.”
The S&P 500
SPX
It closed at a record high on February 19, then began a dizzying decline as concerns about the coronavirus outbreak began to increase. The liquidation continued until March 23, the benchmark for large caps ending at around 34% below its historic high. Since then, it has rebounded strongly to trade around 9% below its highest. But the 200-day moving average looks more like a limit after the index first approached about three weeks ago.
At the same time, it remains above its 50-day moving average, a measure used by traders to measure the short-term trend of an asset. In other words, stocks are “stuck between periods,” wrote Jason Goepfert, chief executive of SentimenTrader and founder of independent investment research company Sundial Capital Research, in a note on Friday (see chart below). As of Friday’s close, the index had stayed between 50 and 200 day averages for 21 consecutive sessions.
SentimenTrader
Since 1928, 29 streaks have lasted at least 20 days, and 21 of them have ended with an S&P 500 below the 50-day average, while only eight have ended with a surge greater than 200 days, it has noted, with a probability of around 72%, that the index would collapse.
But even if the index defied the ratings and went higher, it might not offer much comfort to investors. Pointed out Goepfert. When this has happened in the past, the average return a year later was minus 9.2% and the stocks produced positive returns only 38% of the time, he found.
In fact, the jumps above the 200-day moving average since 2009 “have always been apprehensive,” wrote Mark Arbeter, president of Arbeter Investments, in a note Thursday.
He remembered:
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When the S&P first crossed 200 days in June 2009 as we left this important bear market and the financial crises, the index stagnated, then fell by around 7%, reaching the peak of the decline. 200 days for about a month. The index resumed 200 days in June 2010, after a rapid decline, stopped then fell again to new corrective lows. The 200 days were brought forward in August 2010 and renewed. After the biggest correction in 2011, the “500” rose above 200 days for 2 days and then fell 9.8%. We saw a similar price action in 2015 and 2016, as the late rally above 200 days in October 2015 failed miserably. |
“You would think that after a big correction or a bear market, then a resumption of this key average, the bulls would go crazy, the bears would capitulate and the stock market would go into space. DON’T!” he wrote.
However, some chart observers remain buoyed by recent market action and see a strong chance of profit, at least in the short term, if the S&P 500 removes resistance on average.
Closing the index above a short-term double high at 2,955 earlier this week focused on the 200-day average, said George Davis, chief technical analyst at RBC Capital Markets, in a note (see graph below). ).
RBC Capital Markets
While there is likely to be some selling interest at this level, the market is not overbought, which means that the surge in “risk” could lead the index to higher gains. A successful test of the average would focus on the 3,050 area, he said in a note, followed by 3,110, marking a 76.4% retracement of sales from February to March.