S&P 500: 200-Day Moving Average Back In Play

Mar. 10, 2019 3:08 AM ETSPY, QQQ, DIA, SH, IWM, TZA, SSO, TNA, VOO, SDS, IVV, SPXU, TQQQ, UPRO, PSQ, SPXL, UWM, RSP, SPXS, SQQQ, QID, DOG, QLD, DXD, UDOW, SDOW, VFINX, URTY, EPS, TWM, SCHX, VV, RWM, DDM, SRTY, VTWO, QQEW, QQQE, FEX, ILCB, SPLX, EEH, EQL, SFLA-OLD, QQXT, SPUU, IWL, FWDD, SYE, SMLL, SPXE, UDPIX, JHML, OTPIX, RYARX, SPXN, HUSV, RYRSX, SCAP, SPDN, SPXT, SPXV
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Summary

  • The 200-day moving average has a history of being a key signal for the S&P 500 and stocks. Bull markets tend to trade well above it; bear markets below it.
  • Time spent trading around the 200-moving average usually indicates a period of transition. It is a signal that the factors responsible for driving the market are either changing or have changed.
  • What it is telling us now is that the bear, quieted by Fed Chairman Powell’s capitulation to Wall Street, could begin roaring again soon.

The 200-day moving average has a history of being a key signal for the S&P 500 and stocks. Bull markets tend to trade well above it; bear markets below it. Time spent trading around the 200-moving average usually indicates a period of transition. It is a signal that the factors responsible for driving the market are either changing or have changed. What it is telling us now is that the bear, quieted by Fed Chairman Powell’s capitulation to Wall Street, could begin roaring again soon.

The price action we currently see in the E-Mini S&P 500 indicates a market in transition. Contrary to popular belief, bear markets don’t always begin with a crash. In a mid-February blog post we examined the 2008/2009 crash and highlighted the similarity of that price action to the price action now. The market is testing the 200-day moving average again – only this time to the downside. It closed just above it yesterday.

Data Source: Reuters

The market’s inability to make higher highs, following four upward thrusts through the 200-day moving average (see chart below,) is not a good sign. The path of least resistance is shifting further south with each failure. Our near-term downside targets are old swing lows at 2680, 2600, 2450 and 2300 in the front-month E-mini S&P 500 futures. These levels match downside Fibonacci projections nearly perfectly.

We believe a series of lower closes beneath the 200-day moving average (currently 2752 in the March futures) could be enough to awaken the sleeping bear from his short hibernation. This would put all these targets within reach in short order as the market adjusts to changing economic and political realities. We’ll be monitoring this market for downside entry opportunities.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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Founded in 1984 to give premier options trading and research support, the RMB Group is one of the most respected names in the futures brokerage industry. The RMB Group is a full service commodity brokerage firm specializing in providing clients with access to futures and commodities through managed futures, individual futures trading services, and providing “one-on-one” advice and customer service. From alternative investment solutions to individual futures trading, we pride ourselves on building relationships and designing investment opportunities that fit your personal risk tolerance and interests. With an average tenure of 20 years of financial markets experience, our brokers are seasoned veterans who excel in customizing strategies for experienced investors and mentoring beginning traders. The RMB philosophy is to build long-term client relationships, with truly personal service, and customized futures investment solutions. ================ Founded in 1984 to give premier options trading and research support, the RMB Group is one of the most respected names in the futures brokerage industry. The RMB Group is a full service commodity brokerage firm specializing in providing clients with access to futures and commodities through managed futures, individual futures trading services, and providing “one-on-one” advice and customer service. From alternative investment solutions to individual futures trading, we pride ourselves on building relationships and designing investment opportunities that fit your personal risk tolerance and interests. With an average tenure of 20 years of financial markets experience, our brokers are seasoned veterans who excel in customizing strategies for experienced investors and mentoring beginning traders. The RMB philosophy is to build long-term client relationships, with truly personal service, and customized futures investment solutions.

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