S&P 500 Nears Crucial Support: Analysts Warn of Disappointing Returns If 200-Day Average Is Breached

The S&P 500 index, often considered a barometer for the health of the global stock market, is at a crossroads, and investors worldwide are watching with bated breath.

The index including the 500 most capitalized corporations in the U.S., as tracked by the SPDR S&P 500 ETF Trust SPY is hovering just 2 percentage points above its 200-day moving average, marking its closest proximity since late March 2023.

It’s a precarious position, and the stakes are high.

This critical support level is often viewed as the last line of defense against succumbing to bearish pressure, and the S&P 500 has successfully trading above it for the last six months.

A breach of this pivotal technical support, whether in an upward or downward direction, typically signals a confirmation of a significant long-term trend change.

The current value of the S&P 500’s 200-day moving average is 4,195, and in a previous article, we underscored the importance of this support level.

At this juncture, besides serving as a litmus test for the long-term trend, the S&P 500 would also rest near a significant retracement level from the July highs. Specifically, the 50% Fibonacci retracement level between the 2023 highs and lows, which stands at 4,199.

In essence, this level implies that the index would have retraced precisely half of the bullish journey that saw it rise from the depths of 3,794 on Jan. 3, 2023, to the peak of 4,607 reached on July 27, 2023.

S&P 500 Daily Chart: Moving Averages, Fibonacci Retracement Of 2023 Range

Make-Or-Break Moment: All Eyes On The S&P 500’s 200DMA

Goldman Sachs analysts have turned their attention to the S&P 500’s 200-day moving average. In a recent note, the firm stated, “All eyes are on the S&P 500’s 200-day moving average at 4,195. If this level is tested and fails to provide support, S&P 500 returns for the forward 1-, 3-, 6-, and 12-month periods are expected to be significantly below average following a break in its 200-day moving average.”

Goldman Sachs’ analysis takes a historical perspective, comparing the average returns of the S&P 500 over one month, three months, six months and 12 months since 1928 with those following a breakdown of the 200-day moving average.

The outcomes are clear: when the 200-day moving average is breached, the S&P 500’s subsequent returns tend to underperform the historical averages.

Notably, in the six months following a 200dma breakdown, the S&P 500 index experienced average returns of less than 3%, in contrast to nearly 5% when no technical breakdown occurred.

Will the S&P 500 find support at its 200-day moving average, continuing its upward trajectory, or will it succumb to the bearish undertow? The stock market stands at a pivotal juncture, and technical aspects will increasingly come under scrutiny from investors in the coming days, weeks and months.

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