107.9FM NYJ/LA

Translate This Page

Whenever the Dow and the S&P 500 fall below this key support level, stocks typically come roaring back

Posted by Mark Hulbert on Sunday, January 30, 2022 Under: 848FINACE
Whenever the Dow and the S&P 500 fall below this key support level, stocks typically come roaring back

Breaking the 200-day moving average is not the kiss of death for U.S. stocks, which might explain why the Dow Jones Industrial Average on Jan. 24 recovered from a 1,000-point plunge and finished up for the day. It was just late last week when both the Dow and S&P 500 breached their respective 200-day moving averages — considered by many stock-market technicians to indicate that the market’s major trend has turned down.

The historical record does not support this bearish interpretation. The U.S. stock market historically has not performed more poorly after dropping below the 200-day moving average than it does at any other time.

To show this, I analyzed the S&P 500 (or its predecessor index) back to the mid-1920s. I focused in particular on all days on which the index first dropped below its 200-day moving average. As you can see from the table below, the S&P 500’s average return in the wake of such days was slightly better than on all other days.

Subsequent monthSubsequent quarterSubsequent 6 monthsSubsequent year
200-day moving average sell signals0.7%2.3%4.6%8.2%
All other days0.6%1.9%3.7%7.7%

Moreover, none of the differences reported in this chart is significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine.

The past 30 years

You might worry that the story told by this chart is skewed by experience many decades ago and is not as relevant to today’s market. In fact, the pattern shown in the table would be even more pronounced if I were to have focused only on the past two or three decades. This is not an accident, as I’ve discussed in previous columns. It’s exactly what you would expect given the advent of easily and inexpensively traded exchange-traded funds benchmarked to the S&P 500 (or other broad-market benchmarks).

Take a look at the chart above, which plots the S&P 500 over the past decade along with its 200-day moving average. Notice that, more often than not over the past 10 years, whenever the S&P 500 dropped below its 200-day moving average it typically reversed course and rallied.

There’s no guarantee that the same will happen this time. Indeed, the stock market’s current prospects may be bleak. The point is that its prospects are no worse just because the 200-day moving average was breached.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: The S&P 500, Nasdaq just staged a turnaround for the ages, marking their largest comebacks since the 2008 financial crisis


In : 848FINACE 


Tags: whenever the dow and the s&p 500 fall below this key support level  stocks typically come roaring back 



    HOT 103.1 FM HOUSTON

    Instagram



    Here’s $30 of BTC, on us.
    Get free $30 of BTC 
     by funding your Invstr+
    account
    with $100 or more.
    Fund account & claim $30 of BTC
    Need help? Contact us at
     
    supportplus@invstr.com



    Invest, spend, and earn 2.05% APY*–all through your brokerage account.
    Our goal at Robinhood is to democratize finance. This means delivering products that help you do more with your money and improve your life. Today, we're excited to introduce Cash Management, a new feature to give you more flexibility with your brokerage account.
    JOIN THE WAITLIST
    Flexible Spending
    Use your Robinhood debit card anywhere Mastercard® is accepted around the world.
     
    Earn 2.05% APY
    Your uninvested cash is moved to banks in our program that pay you 2.05% APY*. Like all variable rates, this could go up or down over time.
     
    FDIC Insurance
    Your cash in the program banks is eligible for up to $1.25 million of FDIC insurance, or up to $250,000 per bank, subject to FDIC rules.
     
    75,000+ ATMs
    Don't pay fees at any of the 75,000+ ATMs in our network.
    JOIN THE WAITLIST

    See the source image



    For the next two weeks, you can earn increasing levels of Stock-Back™ rewards when you shift your everyday spending to your Stash debit card.* 

    Every qualifying swipe over $5 gets you closer to leveling up your Stock-Back rewards. Levels start tomorrow and reset to zero on Monday, November 18.

    Follow Us

     

    Flag Counter


    Flag Counter

    Make a free website with Yola