S&P 500’s 200-day trend is both friend and foe

The U.S. benchmark index looks set to flirt with its critical trend gauge again sometime soon

The U.S. benchmark index looks set to flirt with its critical trend gauge again sometime soon

Among technical chart indicators that have appeal beyond the realm of seasoned traders, perhaps the S&P 500’s 200-day moving average is ‘up there’. If anything, since the global stock market’s expansion began from a March 2009 bottom, the gauge of the U.S. market’s health over a business year has gained even greater prominence. Over that stretch, the fiercest market corrections—let’s say when the VIX Volatility Index hit 40 or higher—have coincided with SPX ‘officially’ no longer in an uptrend. In other words, when the S&P 500 was well below its 200-day average.

So, from a technical chart perspective, there are well-founded reasons to take the S&P 500’s latest approach to the threshold very seriously.

More positively, the import of the 200-DMA, cuts both ways. Chiefly, the gauge is a well-known support, with demonstrable resilience. With U.S. economic counters conspicuously holding their ground, by and large, whilst those in other developed economies turn definitively lower, it may be some time before SPX’s 200-DMA sounds any alarms. Note that when SPX approached its 200-DMA in March and June it rebounded sharply.

The difference between then and now is that that the U.S. stock market gauge is rounding off a month of sideways consolidation. We can demarcate the range between the 2945.50 high of 2nd August and 2822.12 low a day later. Since then, price has narrowly avoided going lower on at least three clear occasions, but it has not managed to get higher either.

Classically, technical analysis tends to view moves as stronger if they are preceded by a period when energy has metaphorically been building up.

Further circumstantial negatives include that closely related peer indices of the S&P 500 are faring worse, relative to their 200-day moving averages. The equal-weighted S&P 500, Midcap 400, Small Cap 600 and Russell 2000 have all fallen significantly more this month than SPX.

As for SPX’s near-term outlook, the lower bound of the range outlined above is the most critical level.

Note that the 3rd August low of 2822 we mentioned was an almost identical echo of a low on 6th June. Raising the stakes even higher, that low was the launch point of SPX’s most confident vault in the second half of the year so far. The move peaked seven weeks later and 7.3% higher at 3013 on 26th July.

Any break down and out of the range will heighten expectations of a challenge against the index’s 200-day moving average.

Unsettling vibrations—AKA volatility—can only ratchet higher under those circumstances.

S&P 500 – daily

Source: Bloomberg/City Index


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.