Study: the S&P will probably breakdown below its 200 sma


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:

  1. The S&P was above its 200 day moving average for at least 200 consecutive days, AND…
  2. 3 out of the past 4 days saw the S&P above its 200 sma without falling below it.

Here are the historical cases.

  1. March 28, 2018 (current case)
  2. May 20, 2004
  3. March 4, 1994
  4. January 18, 1990
  5. January 25, 1962
  6. September 11, 1959
  7. 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”.

Conclusion

We can draw 2 conclusions from this study:

  1. The S&P will probably break and close below its 200sma very soon. This supports a previous study.
  2. 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.

2 comments add yours

  1. $NDX and $SPX have gone 442 trading days since BOTH closed a day below their respective 200d moving avgs.
    Why am I telling you this?
    Because this coming Friday, as long as either one is still above their 200dma (likely), it will be the 3rd longest streak EVER.
    $QQQ $SPY

    • Study is coming up tomorrow. When this streak is broken, it’s not the start of a bear market

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