On Tuesday, February 5 and again on Wednesday, February 6, the S&P 500 bumped into its 200-day moving average. While I'm not exactly sure why this particular indicator captures the attention of so many (there are a myriad of more effective trend-following tools readily available), the crossing of the 200-day is viewed as a big deal. Some go so far as to say the moving average represents a line in the sand between the bulls and the bears. As in, if the current price of a security or index resides above its 200-day, it is considered a bull market and if below, a bear market.
Personally, I don't subscribe to such a view. However, it is worth noting that a great many investors, including throngs that get paid to invest other people's money, do see the 200-day as a critical line of demarcation. Thus, how the market acts when it approaches its 200-day is viewed as important.
So, what was the market's reaction when the S&P 500 "tested" its 200-day for the first time in 42 days? See for yourself...
S&P 500 - Daily
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While I wouldn't call it an abject failure, the index did pull back a bit after flirting with the all-important line in the sand for a couple days. So, the question, of course is what, if any message should we take from the initial "bonk" at the 200-day?
The Bull's View
Always optimistic, those wearing their bull caps last week viewed the action as positive. The words "a pause that refreshes" were bandied about quite a bit in the bull camp. After all, even the most ardent bull will admit that stocks have run a long way in a short period of time, that the indices are overbought ...