For the first time since March, the index ended below the average, putting an end to its longest streak of not dropping below in almost three years.
According to technical analysts, the S&P 500 closed below its 50-day moving average on Tuesday for the first time in several months. This occurrence may indicate further declines for the index, indicating that the current stock-market decline may continue throughout the summer.
According to data from FactSet, the index SPX closed at its lowest level since July 11 on Tuesday, decreasing by 51.86 points or 1.2% after consistently declining throughout the session.
According to Dow Jones Market Data, this event is significant as it is the first instance since March 28 when the index has ended below its 50-day moving average. The 50-day moving average is closely monitored as a measure of momentum. Prior to this occurrence, the index had maintained a streak of 96 consecutive closes above the 50-day, the longest stretch since a 102-session streak ended on September 17, 2020.
According to technical analysts, the S&P 500 closed below its 50-day moving average on Tuesday, which has not happened since March. This could indicate further losses for the index, indicating that the current stock market decline may not be finished yet.
According to FactSet data, the index SPX ended Tuesday with a decrease of 51.86 points, or 1.2%, at 4,437.86, marking its lowest closing level since July 11, after consistently declining throughout the session.
According to Dow Jones Market Data, it was the first instance since March 28 that the index ended below its 50-day moving average. This measurement is closely monitored as an indicator of momentum. Prior to this, there had been a 96-day period where the index consistently closed above the 50-day average, which was the longest such streak since September 17, 2020 when a 102-session streak ended.
In the meantime, the Nasdaq 100 NDX, which has been the top-performing major U.S. stock index this year, experienced a decline for the second consecutive week. This is the first time the tech-heavy Nasdaq 100 has seen back-to-back weekly losses since December.
Analysts stated that the recent drop below the 50-day mark was another sign indicating that stocks are likely to experience further declines in the short term.
According to Katie Stockton, a market technician and the founder of Fairlead Strategies, various momentum indicators have worsened in the medium term since August began, due to the decline in stock prices.
Stockton, in a phone interview with MarketWatch on Tuesday, expressed his opinion that the current corrective phase might last for a significant period of time, possibly a few weeks rather than several months.
Some people also agreed with that viewpoint. Analysts are particularly worried about historical seasonal patterns that they think could continue to put pressure on stocks until the end of September.
According to Dow Jones data, September has consistently been the least favorable month for the performance of the S&P 500 since 1928. This data is based on a historical reconstruction of returns prior to the creation of the index in 1957. On average, stocks tend to decline by more than 1.1% in September. On the other hand, August is considered an average month for the index, with an average gain of 0.67%. This places it as the fifth-worst performing month.
Momentum indicators such as the 50-day and 200-day moving averages have been consistent indicators of market performance starting from the start of 2022. In the previous year, the S&P 500 consistently experienced a decline shortly after reaching or surpassing its 200-day moving average.
Analysts have made it clear that the S&P 500 can still decline significantly before they become concerned that the current bull market will be replaced by new low points.
John Kosar, chief market strategist at Asbury Research, stated in a phone interview with MarketWatch that there is ample potential for a decline in the market. However, he also mentioned that the overall long-term trend remains stable.
According to Ari Wald, the head of technical analysis at Oppenheimer & Co., and Kosar, the S&P 500 has a significant support level at 4,325. This level is approximately the same as the previous highs observed in August 2022.
In English, the paragraph means: After reaching a certain point, stocks are expected to receive support at 4,200. If the price drops further and reaches 4,100, this would be the final level that could potentially prevent further decline. However, if the price breaks below 4,100, analysts will have to reassess the long-term trend that started on October 12. On that date, the S&P 500 reached its lowest closing point in 52 weeks at 3,577.03, as reported by FactSet.
Analysts believe that instead of being a setback, the recent decline in stock prices is actually a chance for investors to purchase stocks at better prices in the future.
Kosar expressed that the market had become excessively stretched, but he hopes that there will be a reduction in the excessive enthusiasm in the market, creating a favorable chance for purchasing in the fourth quarter.
Certainly, increasing Treasury yields are causing unease among individuals in the financial district of Wall Street. If the upward trend in long-term yields persists, it may lead to circumstances that trigger a more significant and intense decline in stock prices.
On Tuesday, the interest rate for the 10-year Treasury increased by 3.9 basis points to reach 4.220%, the highest it has been in approximately 10 months.
“If the 10-year yield surpasses 4.333%, the next level above that would be upwards of 5%. This is unpredictable and uncertain,” Kosar stated. The 4.333% mark is approximately equivalent to the highest point the 10-year yield has reached in over 15 years, which occurred in October.