What the S&P's 200-Day Break Really Means for Stocks

The last time the index fell south of its 200-day after a year above it was 2014

Senior Quantitative Analyst
Apr 4, 2018 at 7:27 AM
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After Monday’s stock sell-off, the S&P 500 Index (SPX) closed below its 200-day moving average for the first time since June 2016. Going all the way back to 1929, it’s just the 19th time the index spent over a year above that trendline. It’s a widely followed moving average, so bulls will tout the dip as a buying opportunity, while bears will say it's major support being broken. This week, I’ll see how the SPX has performed after breaking its 200-day moving average after such a long time spent above it.

SPX After Snapping Streak Above 200-Day

This table shows SPX returns after its 200-day moving average was breached for the first time in at least a year. When you summarize the returns after these signals going back to 1929, they're not too impressive going forward. The average SPX returns underperform the typical returns at each time frame, as you can see by comparing the first table below to the anytime returns since 1929. However, two of those occurrences happened during the Great Depression, where losses were large following the 200-day breach. Simply getting rid of those two returns sends the average S&P return over the next year above 10%.

spx after 200day break vs anytime

Last 10 Breaks Have Preceded Big Gains

This table shows the last 10 times the 200-day moving average was breached by the S&P 500 after at least a year above it. The last time it occurred was 2014. Stocks immediately bounced back after that instance, with the SPX gaining more than 8% over the next month, and more than 12% over the next six months. Hopefully the bulls step up similarly after this week's breach. In fact, the last seven times this happened, the index was positive over the next six months and one year.

spx after 200-day MA streak ends

The more recent breaks of the 200-day moving average have had bullish implications going forward for stocks. The average S&P return after these signals significantly beats typical index returns since 1963 (the year of the first of the last 10 signals). An optimistic perspective would be that technical analysis is more prominent in more recent times, because of computers and accessibility.

spx after last 10 breaks vs anytime


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