The S&P’s 200-DMA: Why It Ain’t No Maginot Line

For the last five years the S&P 500 has been dancing up its ascending 200-day moving average (200-DMA), bouncing higher repeatedly whenever the dip-buyers did their thing. Only twice did the index actually break below this seeming Maginot Line: In August 2015, after the China stock crash, and in February 2016, when the shale patch/energy sector hit the wall.

As is evident below, since the frenzied peak of 2873 on January 26, the index has fallen hard twice—on February 8 (2581) and March 23 (2588). Self-evidently, both times the momo traders and robo-machines came roaring back with a stick-save which was smack upon the 200-DMA.

But here’s the thing. The blue line below ain’t no Maginot Line; it’s just the place where the Pavlovian dogs of Bubble Finance have “marked” the charts. And something is starting to smell.
^SPX Chart

In fact, it’s starting to smell very much like an earlier go-round when Pavlov’s 200-DMA barkers had enjoyed a prolonged ascent—-only to find an unexpected cliff-diving opportunity at the end.

We refer to the nearly identical five year run-up to the March 2000 top at 1508 on the S&P 500. Back then, too, the 200-DMA looked invincible, and had only been penetrated by the August 1998 Russian default and the Long Term Capital Management meltdown a month later.



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