Tracking Account Valuation January 4, 2022 – $1,206,085

Tracking Account Valuation Currently- $2,250,691 +87%

Intermediate-Term: ~ Downtrend

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This week’s article will examine the key moving averages for the S&P 500, explaining what they represent, how they function, and, most importantly, what they reveal about the market’s current trend. We’ll also review how traders can position themselves accordingly to stay aligned with the prevailing momentum.

Moving averages are fundamental tools in technical analysis, providing insights into the S&P 500 Index’s (SPX) price trends by smoothing out short-term fluctuations. The 20-day, 50-day, and 200-day moving averages are particularly significant:

• 20-Day Moving Average (20 DMA): This reflects the short-term trend, offering a view of the market’s recent performance.

• The 50-day Moving Average (50 DMA) captures the intermediate-term trend and is often used to identify support or resistance levels.

• The 200-day Moving Average (200 DMA) represents the long-term trend and is a critical indicator of the market’s overall direction.

This week, the S&P 500 Index traded below its 200-day moving average. This breach is a significant technical event, as the 200 DMA is often a strong support level. Prices falling below this threshold may signal potential for further declines or a prolonged bearish phase. Historically, such breaches have increased market volatility and cautious investor sentiment.

The 50-day moving average has been compromised recently, indicating waning intermediate-term momentum. Stocks like Netflix, Spotify, and JPMorgan Chase have fallen below their 50-day lines, underscoring broader market weakness.

The 20-day moving average, reflecting short-term trends, has similarly been breached, aligning with the overall bearish sentiment.

In the days, weeks, and months ahead, these moving averages may act as resistance levels:

• Short-Term (Days): The 20 DMA could serve as immediate resistance. If the SPX attempts a rebound, failure to surpass this level might result in continued short-term weakness.

• Intermediate-Term (Weeks): The 50 DMA becomes a focal point. Sustained trading below this average may indicate persistent selling pressure and a lack of bullish momentum.

• Long-Term (Months): The 200 DMA is crucial. Prolonged positioning beneath this average can signal a bearish market environment, potentially leading to significant declines.

Market technicians closely monitor these moving averages to assess support and resistance levels. A breach below a moving average, especially the 200 DMA, can shift its role from support to resistance. Conversely, reclaiming these levels may restore them as support, indicating potential bullish reversals.

Given the current technical landscape, investors are advised to exercise caution. The recent breaches of key moving averages suggest heightened market vulnerability. Monitoring these levels is essential for informed decision-making in the upcoming periods.

We will shortly analyze the 20-, 50-, and 200-day moving averages for the SPX (S&P 500 Index). Before that, however, let’s reflect on their behavior at the 2000, 2007, 2020, and 2022 peaks.

2000:

The S&P 500 peaked on September 1, 2000. The chart above illustrates SPX’s daily price action alongside its 20-day (blue), 50-day (red), and 200-day (green) moving averages. Several weeks after the peak, on September 27, the 20-day moving average fell below the 50-day moving average. On the same day, the SPX price was trading below the 200-day moving average, confirming the onset of a long-term decline, as outlined in the earlier discussion on these key technical indicators.

The chart below, covering the S&P 500 for 2000 through October 10, 2002, illustrates what unfolded after SPX crossed below the 200-day moving average.

The S&P 500 peaked on October 11, 2007. The chart above illustrates SPX’s daily price action alongside its 20-day (blue), 50-day (red), and 200-day (green) moving averages. Several weeks after the peak, on October 11, the 20-day moving average crossed below the 50-day moving average. By then, six days earlier, the SPX price had also dropped below the 200-day moving average, confirming the onset of a long-term decline, as outlined in the earlier discussion on these key technical indicators.

The chart below, covering the S&P 500 from mid-2007 through March 15, 2009, illustrates what unfolded after SPX crossed below the 200-day moving average.

2007:

The S&P 500 peaked on February 19, 2020. The chart above illustrates SPX’s daily price action alongside its 20-day (blue), 50-day (red), and 200-day (green) moving averages. Eight days after the peak, on February 27, 2020, the 20-day moving average crossed below the 50-day moving average. By then, two days earlier, the SPX price had also dropped below the 200-day moving average, confirming the onset of a long-term decline, as outlined in the earlier discussion on these key technical indicators.

The chart below, covering the S&P 500 from February 1 through March 23, 2021, illustrates what unfolded after SPX crossed below the 200-day moving average.

The S&P 500 peaked on January 4, 2022. The chart above illustrates SPX’s daily price action alongside its 20-day (blue), 50-day (red), and 200-day (green) moving averages. Eight days after the peak, on February 27, 2020, the 20-day moving average crossed below the 50-day moving average. By then, two days earlier, the SPX price had also dropped below the 200-day moving average, confirming the onset of a long-term decline, as outlined in the earlier discussion on these key technical indicators.

The chart below, covering the S&P 500 from December 2021 through October 12, 2022, illustrates what unfolded after SPX crossed below the 200-day moving average:

Below is the current SPX daily chart through the latest trading day, March 7, 2025:

On Friday, March 7, the 20-day moving average crossed below the 50-day moving average. As seen in past cycles—2000, 2007, 2020, and 2022—this signal typically coincides with or is closely followed by the SPX breaking below its 200-day moving average. In this case, SPX traded below the 200 DMA on Thursday, March 6, and again on Friday, March 7.

Accordingly, this breach of the 200 DMA signals that the long-term bear market decline is underway. We will maintain our current position in the tracking account and look for opportunities to add to our position during countertrend rallies, with a continued emphasis on overweighting the market’s weakest sectors.

While the trend is down, countertrend rallies are inevitable. With markets currently oversold to the deepest level of the year, we expect such spikes to occur at any time in the days ahead.

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