S&P 500 vs 50-DMA

 

This week’s featured chart shows the S&P 500 stock index (green line) accompanied by its 50-day moving average (orange dashed line). The vertical black line demarks the start of this year. And the blue arrows mark every occurrence this year when the S&P 500 has fallen to its 50-day moving average but then quickly rebounded off the average.

As you can see, that’s happened quite a few times this year. Like Pavlov’s dogs conditioned to salivate at the sound of the dinner bell, investors have become conditioned to “buy the dip” at even the slightest sign of a pullback.

From a technical standpoint, that’s a sign of a strong uptrend. The 50-day moving average line has become a level of support, so to speak, where demand floods in to buy at what is now more attractive prices.

However, it’s inevitable that the stock market will eventually see a correction—where prices move meaningfully below the 50-day moving average line. It’s happened plenty of times before, and it will happen again. But in the meantime, investors seem dead set on buying the dip any chance they get.

 

This is intended for informational purposes only and should not be used as the primary basis for an investment decision.  Consult an advisor for your personal situation.

Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.

Past performance does not guarantee future results.