This bearish trend for stocks may mask a rally in waiting

The S&P 500 began April with a decline that takes it within 10 points of closing below its 50-day moving average. While that typically means a bearish turn for the market, it by no means is a sign to head for the exit, according to analysts at Bespoke Investment Group.

As of Monday, the S&P 500 has gone 98 days without closing below its 50-day moving average, the longest since March 2011.

Moving averages are trend indicators based on a set of data over a specific time period and are used by market watchers to determine the market’s direction.

In the last 20 years, this is only the fifth time the S&P 500 has traded for longer than four months above its 50-day moving average.

However, the stock market has been resilient if nothing else and the bearish impact on equities is likely to be muted as historical data suggest that stocks post a median return of roughly minus 0.26% in the week after breaking a 50-day moving average.

In fact, in the month following such a breach, the market has generally performed well, indicating that April could make up for some of market’s doldrums from March. The S&P 500 SPX, -0.16% fell fractionally last month, while the Dow Jones Industrial Average DJIA, -0.06% was off 0.7%.

In previous instances where the S&P 500 has broken below its 50-day moving average after an extended period above it, the index has returned 0.68% in the subsequent month and 1.97% in the three months following.

Source Market Watch

 Varchev Traders

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