More Uncommon S&P Moving Averages to Watch

Traders should broaden their horizons beyond the 50-day and 200-day trendlines

by Bernie Schaeffer

Published on Oct 8, 2019 at 7:11 AM
Updated on Oct 8, 2019 at 7:11 AM

The featured commentary in our October issue of The Option Advisor was well-timed, as it was just this last Wednesday, Oct. 2, that the S&P 500 Index (SPX) finally snapped a winning streak of historically rare proportions above its 160-day moving average. Following 143 consecutive daily closes above this under-the-radar trendline, two straight days of heavy selling to start the month of October finally sent the S&P reeling below its 160-day moving average, ending the streak that began back on March 11.

After that mid-week breakdown, however, the S&P finished relatively strong. The index rallied easily back above its 160-day on Thursday, and by Friday had strung together a second daily close above this trendline -- perhaps marking the start of a new streak above this technical level.

In any case, we'll reiterate one of the takeaways from our commentary of just over a week ago, which is that previous breaks of long-time 160-day support have yielded surprisingly bullish returns for the broad-market index. After the initial break of 10 previous streaks of comparable length above its 160-day moving average, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has gone on to outperform its typical expected returns over the ensuing one-month, three-month, six-month, and 12-month periods, looking at both the average returns and percentage of positive returns. (Data in the table below is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.)

spy after 160dma streak ends vs anytime

Another of the key takeaways in that commentary was the importance of adding "unusual" or "uncommon" indicators to your technical analysis. We won't argue that widely followed moving averages like the 50-day and 200-day have certainly earned their place on your monitor -- but, as contrarians, we've found that an effective way to reality-check the signals flashed by these "crowded" technical levels is through augmenting them with a full complement of their more offbeat, yet proven, counterparts.

And since outperformance isn't necessarily a guarantee after this latest 160-day break, now is an ideal time to present a wider array of the S&P moving averages that have been in play over the past several years (whether they've gotten due credit for it or not). In the weeks ahead, tests of resistance and/or support at these levels could present short-term buying or selling opportunities -- and potentially, opportunities that go overlooked by those not tracking these off-the-beaten-path indicators.

The 40-day moving average (in pink) has provided close support for rallies in recent years, but has also shown a propensity for keeping a tight lid on SPY when it's approaching from below, as during the fourth-quarter 2018 sell-off. This trendline just completed a bearish cross with its 80-day counterpart, shown in red, which is currently lingering around the 2,950 half-century mark on the S&P 500. The S&P 500 closed above both of these trendlines Friday, while SPY was sandwiched in between the two, with the 80-day hovering directly overhead.

Shown in yellow is the 126-day moving average, which represents half a year's worth of trading days. This trendline contained SPY's lows when it broke below the 160-day moving average (dashed green line) in the first quarter of 2019, and the exchange-traded fund (ETF) closed back above its 126-day on Friday after two straight sessions below it.

When SPY closed below its 200-day moving average (in black) back in early April 2018, it was the 250-day moving average (light blue), measuring roughly a year's worth of trading days, that stepped in to contain the lows. However, another 200-day break in early October of that year immediately sliced through the 250-day as well, and stocks went on to take heavy losses into year-end. If another S&P 200-day breach takes place, watch to see if there's a "hidden" catch at the 250-day.

From a longer-term perspective, we have the 380-day moving average (dark blue line), which is approximately equivalent to a year and a half of trading days. SPY broke out above here in late January, then subsequently retested in early February. The early June lows were contained by the confluence of this trendline along with the 126-day and 160-day moving averages. And the 500-day moving average, in slate, briefly caught an early December 2018 low before acting as support on a mid/late-January 2019 retest.

Last, but not least significant, is the 1,000-day moving average, which last met up with SPY at the site of its Dec. 26, 2018 intraday low. Prior to that, the 1,000-day marked S&P highs in August 2008 and April 2010, after stepping up to provide support on numerous occasions throughout the first quarter of 2008. Currently, this "last ditch" support line is located just below the 2,500 century level on the S&P 500.

spy with uncommon moving averages to watch

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, October 6.


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