LIVE MARKETS-S&P 500 index breaks 50-DMA: Will the ship sink, or the tide turn?
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S&P 500 INDEX BREAKS 50-DMA: WILL THE SHIP SINK, OR THE TIDE TURN?
On Monday, the S&P 500 index .SPX ended a 138-trading-day run of closes above its 50-day moving average (DMA), which was its longest such streak above this closely followed intermediate-term moving average since a 149-trading-day stretch that ended in February 2007.
Meanwhile, the benchmark index is on pace to end a six-month win streak. The SPX last rose more than six months in a row with a seven-month run of gains ending in August 2021.
With its recent weakness, the S&P 500 ended Monday down 3.2% from its October 28 record close and down 3.6% from its October 29 record intraday high.
However, the concern is that the index's break of its 50-DMA may spark additional downside momentum given damage to the intermediate-term trend.
Looking under the surface, we see that within the index itself, the percentage of its individual stocks above the 50-DMA peaked at 80% on July 1.
Since then, amid dissipating energy, this measure diverged into the S&P 500's late-October highs. In fact, as of Monday's close, it's already down to 36%.
Of note, since the 2022 bear market was ending, and prior to the most recent top, there have been six distinct peaks in the measure at 80% or higher. Subsequent to those highs, this measure on average bottomed at 20% (median 13%). Half of those lows were sub-10%.
Thus, by this measure, and given recent history, a decline closer to even the 20% average would suggest there is still risk for broader index weakness. That said, from here, it could happen quickly.
In any event, if the measure were to see a V-bottom reversal, it may signal a sufficient washout, and a turn in the tide within the S&P 500.
(Terence Gabriel)
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