The S&P 500 Is Testing Its 200-Day Moving Average – Mike Swanson (05/27/2020)

Yesterday the S&P 500 managed to trade above its 200-day moving average. It then faded a little before the end of the trading day to close below it. The move through this key indicator though caused many on the internet and Twitter to declare that we are in a new bull market.

I wouldn’t go that far. In reality I don’t think the stock market averages are really going to do much one way or the other for at least a few weeks. We saw a March crash and then a quick rebound rally, but many stocks are still broken. More importantly when any market swings down and up wildly like this one has you can expect it to go sideways for awhile. That is more clear when you look at the chart going back for several years.

If I thought the market was going to new highs I would still expect it to drift for the rest of this summer. And if it goes down later as I suspect it is still likely to go sideways too for now anyways. So I just don’t see an easy way to make money trading SPY on a short-term basis at this moment.

Marketwatch noted that the S&P 500 has actually been trading between its 50-day and 200-day moving average for a month now. It interviewed the founder of SentimenTrader who remarked that “since 1928, there have been 29 streaks that have stretched to at least 20 days — and 21 of them ended with the S&P 500 falling below the 50-day average, while only eight ended with a push above the 200-day, he noted, making for a roughly 72% probability the index will break down.”

The real action is in individual stocks. Focus on the ones beating the market. My top stock pick for April and May simply soared to do just that. And we’ll have a new one soon for next month too.

-Mike



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