Bears gained confidence from last month’s stock market drop. However, one long-term trend line shows that the S&P 500’s 4.6% drop barely registered.
After surpassing its April 2022 peak in mid-February, the S&P 500’s 200-day moving average has risen further into record territory. Dow Jones Market Data reported a new long-term trend line record of 4,706 points on Monday.
In a chart posted on X, formerly Twitter, over the weekend, Carson Group market strategist Ryan Detrick highlighted the 200-day moving average’s resilience. He saw it as a compelling reason for investors to ignore pessimists like Robert Kiyosaki and stay in stocks for the long term.
Detrick told MarketWatch on Monday that Wall Street says, “The trend is your friend.” Stocks rise over time.
The S&P 500’s 200-day moving average since 1991.
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“I compare the 200-day moving average to a cruise ship: Once it gets moving, it’s hard to turn around, and usually that trend continues for a while,” Detrick said.
A representative for Kiyosaki declined to comment for this article.
New S&P 500 200-day moving average record highs weren’t the only encouraging technical development on Monday. Dow Jones Market Data reported that the benchmark large-cap index closed above its 50-day moving average for the first time in over two weeks, indicating that investors have moved on from April’s stock market turmoil.
These technical gauges show stocks’ ability to rise in 2024 despite sticky inflation, shifting expectations about the number of Federal Reserve interest-rate cuts this year, and Middle East geopolitical unrest.
Detrick also noted that strong first-quarter earnings growth and Wall Street’s improving outlook for 2024 earnings will likely keep stocks at a floor.
Detrick added that historical performance supports staying the course. Today’s bull market is young, having only lasted 19 months compared to the average five years of the previous 12.
Stocks in a bear market have fallen more than 20% from their peak.
According to Katie Stockton, founder and managing partner of Fairlead Strategies, other technical indicators suggest stocks may continue to fall in the coming weeks, so investors looking for an entry point should wait.
As a lagging indicator, the 200-day moving average shows the long-term trend. But it isn’t the best market-timing device,” Stockton told MarketWatch on Monday.
The 20-day moving average, which is shorter-term and has fallen since April 11, FactSet data show, is better, she said. She checks MACD monthly and weekly.
Recent weekly MACD readings suggest stocks may fall further, but the monthly indicator has yet to confirm a longer-term trend shift.
“They would indicate that we have another leg lower to this corrective phase,” Stockton said. However, it should be an opportunity, not the start of a bear-market cycle.
On Monday, the S&P 500 SPX rose 52.95 points, or 1%, to 5,180.74, its third straight gain. Meanwhile, the Nasdaq Composite COMP gained 192.92 points, or 1.2%, to 16,349.25, also its third consecutive trading day of gains.
The Dow Jones Industrial Average DJIA gained 176.59 points, or 0.5%, to finish at 38,8852.27, rising for a fourth straight session.
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