The stock market’s recent stumble has brought the S&P 500 to within striking distance of an important trendline for the first time in five months — hinting at a make-or-break moment for the stock rally.
On Thursday, the S&P 500 SPX briefly traded within 33 points of its 50-day moving average at its session lows, the closest the index has come on an intraday basis since Nov. 2, according to FactSet data.
Should the index cross below this threshold, it could signal that stocks are poised to fall further, with the index potentially reversing some of the rapid run-up that has carried the S&P 500 more than 25% higher between late October and Wednesday’s close, FactSet data show.
To many on Wall Street, a modest pullback would seem largely benign — and even welcome — after stocks have risen too far, too fast over the past few months, according to Craig Johnson, chief market technician at Piper Sandler Technical Research.
The rally was initially inspired by expectations for aggressive interest-rate cuts by the Federal Reserve in 2024, a scenario that appears much less likely following three hotter-than-expected inflation readings via the consumer-price index.
“The S&P 500 is getting pretty darn close to that 50-day moving average. I keep saying to people this market is overdue for a correction. We haven’t had any sort of pullback to the 50-day moving average for five months,” Johnson said during an interview with MarketWatch.
As stocks surged higher with hardly a down day, the S&P 500 traded above its 50-day moving average by an unusually wide margin, exemplifying the rally’s rapid pace. According to data from Bespoke Investment Group, the index had traded one standard deviation or more above its 50-day moving average for 53 days, a streak that ended one week ago on April 4. This represented the longest such streak since 1998.
Major U.S. large-cap indexes including the S&P 500 and Nasdaq Composite COMP had largely recovered their losses from earlier in the week by Thursday afternoon. Among the three most closely followed indexes, only the Dow Jones Industrial Average DJIA remained on track to finish in the red for the fourth week out of the past five, according to FactSet data.
Other closely followed technical indicators pointed to a loss of momentum for the S&P 500, even as the index continued to trade roughly 1% below its closing record of 5,264.85 from March 29. The 14-day relative-strength index was hovering around 55 on Thursday afternoon after falling to a five-month low of 47 late last week. Readings above 70 indicate the underlying stock index is overbought.
The S&P 500’s 50-day moving average stood at 5,105.73 on Thursday. If the index breaks below it, technicians will be looking at 4,990 as the next support level to watch, according to Johnson. Hitting this level would correspond with a 23% retracement of the index’s rally since its Oct. 27 closing low at 4,117.37.
Intermediate and long-term moving averages often coincide with levels of support or resistance for the market, according to Katie Stockton, founder and managing partner of Fairlead Strategies.
