The S&P 500 has broken below its 200-Day Moving Average, again, leaving investors in a state of panic. This is a very powerful event, signaling that market sentiment is not in favor of stocks at the moment.
The 200-day moving average is seen as a key gauge for medium-term market sentiment. It is calculated by taking the average closing price of the S&P 500 Index over the preceding two hundred days. When the index price breaks below this average, it indicates that the market is in a negative trend and bearish sentiment has taken hold.
This recently happened for a third time in 2021 as the S&P 500 crossed the 200-day average on February 14th. It comes on the back of a strong rally since the start of the year, with the index peaking at a high of 3829.68 before the drop.
It’s too early to know the exact consequences of crossing the 200-day moving average, however, this is usually a sign of increased market volatility. Many investors will be cautioning against putting too much money into stocks for now. It’s important to be aware of the current risk in the market and be sure to diversify your investments accordingly.
It’s also worth noting that the S&P 500 bounces back up after crossing the 200-day moving average frequently. This can be a buying opportunity for long-term investors who are willing to stomach the volatility in the short term.
Overall, the S&P 500’s latest drop below the 200-day moving average is a sign of heightened market volatility. Investors should be making sure their portfolios are properly diversified and their risk exposure is appropriate. There is also potential for short-term buying opportunities, although these should be approached with caution.