Crash: S&P 500 and Dow Jones Break 200-Day

03:22 10/24/2018

At the moment, all we can do is wait for the selling pressure to stop.

Unfortunately, markets are pulling back on the fear we were anticipating ahead of mid-term elections. On top of that, now we get news of bombs being sent around the U.S. On top that, some believe the Federal Reserve made a mistake raising rates too fast, which will make borrowing much more expensive. Mid-term election jitters are also to blame. Economic growth is slowing in Europe and Asia.

And then, of course, the tariff war between China and the U.S. hasn’t been well received. This is all happening in the worst month of the year, mind you.

The best thing to do right now is to just sit tight.

What’s troubling is the 200-day has been breached on the Dow Jones and S&P 500. When it comes to technical analysis, moving averages are essential.

For example, for more than 20 years, I’ve relied on two specifically – the 50-day and the 200-day simply moving average. Not only am I looking for crossovers for golden and death crosses, I want to see if a stock is holding its own above them.

If not, it could be a sign of potential problems and selling pressure.

The 50-day and 200-day are each powerful because they give us a view of a stock’s trend, as well as a look at where we may find support and resistance along the way. For example, if I find a stock that historically bounces every time it hits its 50-day moving average, I’m likely to buy on a test of that moving average.

That’s because, as they say, the trend is your friend.

But if a stock or index pushes below the moving averages, we need to be cautious.

Look at the S&P 500 for example. For the last three years, the index has remained in a tight uptrend, verified by its ability to stay above – or bounce from the two major moving averages.

But look at what just happened.

The S&P 500 broke through the 50-day and 200-day moving averages to the downside. That’s something you want to keep an eye on. If the index cannot regroup and recover from just under the moving averages, there exists the potential for a further drop.

It’s essential that you pay close attention to your moving averages with stocks, ETFs and major indices. They can be a clear indicator of the potential for trend change.

This article has been provided by a Chasing Markets contributor. All content submitted by this author represent their personal opinions, and should be considered as such for entertainment purpose only. All opinions expressed are those of the writer, and may not necessarily represent fact, opinions, or bias of Chasing Markets.
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