Game of Trades: We Haven’t Seen This Since the Dot-com Bust
The S&P 500 index is testing its 200-day moving average for the first time since the Covid crash in early 2020. This test occurs every few years, with prior tests in 2018 and 2015. That’s amid what today’s investors view as part of a long bull market from 2009-2020.
Markets often bounce off of this key technical level. However, when they don’t, it can mean more months of pain ahead for investors while a bear market deepens.
A 200-day moving average can often be a turning point higher, particularly if the economy is still growing. But in a recession, like in 2008, it can be a sign of a further move lower.
The question is where we stand today. The economy has shrunk this year enough to be considered a recession by the official definition. However, factors like the labor market and consumer spending remain strong.
Another factor weighing on financial markets is the US dollar. The currency has been strong this year. That’s made other currencies relatively weaker. That’s good for other countries, particularly if they have strong exports. But it can weigh on earnings.
The dollar is looking overbought in the short-term, so it could weaken in the coming months. That could take some of the pressure off of global markets and lead to a bounce off of the stock market’s 200-day moving average.