The S&P 500 Index is starting the week down -3.2% on the year and -10% off the high. It’s right in the middle of “correction” territory in market lingo.
The 200-day moving average on the S&P 500 Index is still in an uptrend (or upslope) and is climbing at an appreciable pace. It’s roughly 50 S&P points higher than the intra-day level that was tested back in February.
Long-term averages (by definition) are slow to change.
Disrupting the Current Trend Takes A Lot
Think of it like getting a freight train or aircraft carrier moving in one direction. It takes a lot of time and energy to ultimately disrupt the current trend.
A re-test of the February intra-day low would still be considered a technical break of the 200-day moving average. I think this area is probably more important from a risk management standpoint than the trend line itself.
A successful re-test and hold of the February lows would likely be viewed as an overall bullish sign and create a more stable base of support to trade against.
The recent volatility is also shaking up other trend lines as well. The 50-day moving average is starting to roll over, which is to be expected from the series of sharp moves in both directions. This indicator is truthfully more useful for short-term traders who are in and out of the market on a more regular basis.
Speaking of volatility – this type of price action is perfectly normal and shouldn’t be viewed as a catalyst for investors to panic or pivot from their current game plan. There are plenty of times when the market whipsaws back and forth above and below the 200-day with very little rhyme or reason. Take it with a grain of salt.
There will also be significant divergences between the major indexes, individual stocks, and ETFs in how they are positioned versus their respective trend lines.
It’s more important to stick with your overarching investment strategy than it is to listen to your gut feeling or chase yourself in circles by trying to divine the next bear market. Make sure that any action taken in your portfolio from these technical cues will add value to your overall positioning rather than a simple knee-jerk reaction.
This article has been republished with permission from FMD Capital.