The S&P 500 index is now in the eye of the storm, trading over 900 points above its 200-week moving average. This divergence has led many to wonder how long it can sustain its recent boom and when a healthy correction will occur. At all previous 14 years, the S&P 500 has found a strong rebound right around this important short-term moving average. More often than not, it comes in contact with or reverses direction at 2-5% of it. As of now, the index is almost 25% over its 50-week moving average. This development stands in stark contrast to its historical norm as it approaches key moving averages.
So far this year, the S&P 500 has provided a remarkable performance. That’s quite a run, more than 40% since bottoming out in early April. But growth has not come without challenges. Last week, the index had an awful day of trading. Much of this upheaval was a result of former President Donald Trump’s combative response to China’s tariffs that exacerbated market turmoil.
In the face of all these set-backs, S&P 500 index futures were up sharply after last Friday’s ordeal. This unexpected rebound suggests that investor sentiment can still surprise – for better or worse – despite the challenging mix of fundamental market conditions underneath. The S&P 500 is trading at multiples that are dramatically different than when it was last near its 50-week moving average. This divergence could be a signal of an impending replaying of market factors.
Market observers are pointing out that the S&P 500 likes to test new trends in the last three months of the year. As such, traders are watching its movements very closely to find out if a major correction is approaching. This correction could target the concentrated range of 6100–6150, where both the S&P 500’s 50-week moving average and last winter’s highs are located.
Further contributing to the market’s uncertainty, the S&P 500 has enjoyed a period of historically low volatility over the past six weeks. This stable, low volatility environment has led to a further mixed bag of signals of investor sentiment. The market Fear and Greed Index on Friday nosedived to 29—Fear. Such a steep drop is indicative of an overwhelming level of panic and deep fear among investors. As a result, on Monday, the index shot up to 30 again. This jump is an encouraging sign that confidence may be returning to the market.
First, the S&P 500 has gone into extreme fear territory before quickly bouncing back in recent years. This pattern raises concerns about whether current market conditions are indicative of an impending correction within an ongoing bull market. Analysts suggest that as the index approaches key moving averages, it could encounter resistance or support that influences its trajectory.