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Is the Market Showing a Gradual Crackdown?

PART:
1 2 3 4
Part 3
Is the Market Showing a Gradual Crackdown? PART 3 OF 4

Are Moving Averages of the S&P 500 and Russell 2000 a Warning?

S&P 500 index

In this part of the series, we’ll look at the moving averages of the S&P 500 and the Russell 2000 indexes. On August 21, 2017, the S&P 500 index (SPY) was 1.6% below its 50-day moving average. However, on the same day, it closed just 0.30% and 3.4% above its 100-day and 200-day moving averages, respectively.

Are Moving Averages of the S&amp;P 500 and Russell 2000 a Warning?

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If the S&P 500 index breaks below the 100-day moving average, the 200-day moving average could be the next important support zone. Since August 10, 2017, the 50-day moving average is converging toward the 200-day moving average. The convergence between these two moving averages could point to a weakness in the S&P 500 Index.

On a year-to-date basis, the S&P 500 index has risen around 8.5%. However, on a month-to-date basis, the S&P 500 index has fallen 1.7%.

Russell 2000 index

On August 21, 2017, the Russell 2000 index (IWM) was 3.2%, 3.0%, and 1.3% below its 50-day, 100-day, and 200-day moving averages, respectively. On August 2, 2017, it fell below its 50-day moving average. On August 10 and August 17, 2017, it fell below its 100-day moving average and 200-day moving average, respectively.

In the last trading session, the 50-day moving average was just 2.0% above the 200-day moving average. If the 50-day moving average breaks below the 200-day moving average, it could accelerate a further fall in the index. On a month-to-date basis, the index has already fallen 4.8%. However, it was unchanged on a year-to-date basis.

Moving averages are important indicators for market movement (QQQ) (VOO). According to Matt Maley, equity strategist at Miller Tabak, the fall of the Russell 2000 index below the 200-day moving average for the first time this month is a “warning sign.” The index covers the performance of the small-cap stocks of the United States (VOO).

In the next part of this series, we’ll analyze what economic growth and earnings growth are indicating for the market.

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