Banking

If Stocks Break This Key Market Indicator Next — Look Out Below

Investors already lost $1.8 trillion in September — as the plunging S&P 500 sliced below its 50-day moving average. But now, all nervously hope the next key support level holds: the average price in the past 200 days.




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And it’s a real worry now. Following the S&P 500’s 1.7% drop on Monday, nearly 200 stocks in the S&P 500, including Las Vegas Sands (LVS), Discovery (DISCA) and Wynn Resorts (WYN), already dropped below their 200-day moving averages, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.

Another 6% move down and the S&P 500 would take out its 200-day moving average next. And that’s a big deal. It’s the final line in the sand before many professional investors will worry more selling — or correction — is on the way. Already, 348 S&P 500 stocks, or nearly 70% of the index, dropped below their 50-day moving average.

“The market closed below this level (50-day moving average) on Friday the 17th, raising concerns that this may be the beginning of the long-awaited correction,” said Sam Stovall, market strategist at CFRA.

Watching S&P 500 Indicators

Seeing the S&P 500 drop below its average price over the past 50 days is a major scare. The S&P 500 tested and bounced off the level eight times this past year, Stovall said. Investors thought a floor was in. The floor just caved.

“This advance is already long in the tooth (it is currently the ninth-longest since World War II),” he said. “Investors will continue to search for a directional catalyst as they contend with a growing number of headwinds.”

And the big test now is the 200-day moving average, which is 4,106 on the S&P 500. It’s an important level as it’s the average price investors paid in roughly the past year. Falling below means most people who bought into the S&P 500 in roughly the past year would be losing money.

So far, it’s holding. All 11 S&P 500 sectors remain over their 200-day moving averages, even though most are now below their 50-day moving averages. Concerningly, though, the S&P Midcap 400 and S&P Smallcap 600 indexes are already below their 200-day moving averages.

And right now, the line is seen as the last firewall from a full-blown 10% correction. “Should the S&P 500 go on to challenge its 200-day average, it would represent a decline from the September 2 all-time high of 9.6%, placing it well within reach of the ‘correction’ camp, which is a decline of 10.0% or more, but less than the bear-market definition of a 20% decline,” Stovall said.

What’s Holding Up Best, Worst In The S&P 500

If you’re looking for where the S&P 500 is already cratering, companies close to China are feeling the pain. Las Vegas Sands and Wynn Resorts, which run large gambling operations in Macau, are hurting.

Shares of Las Vegas Sands, which runs a number of properties in China including The Venetian Macao Resort Hotel, Monday plunged more than 30% below its 200-day moving average. It’s further below its 200-day than any other S&P 500 stock. Similarly, Wynn Resorts is now down nearly 30% from the 200-day moving average.

But not all S&P 500 are diving below their 200-day moving averages. Moderna (MRNA), a maker of innovative vaccines, is not only 97% above its 200-day moving average. It’s 13% above its 50-day moving average. Should you invest in Moderna stock now?

Time will tell if more S&P 500 stocks will end up more like Moderna, or Las Vegas Sands. But investors at least know what line in the sand to watch.

S&P 500 Stocks Drop Farthest From 200-Day Support

Company Symbol Stock % ch. Sept. % stock ch. from 50-day moving average Ch from 200-day moving average
Las Vegas Sands (LVS) -15.5% -12.6% -30.5%
Discovery (DISCA) -9.8% -8.4% -29.7%
Wynn Resorts (WYNN) -19.3% -17.6% -29.5%
IPG Photonics (IPGP) -5.5% -13.0% -23.1%
Lamb Weston Holdings (LW) -5.6% -9.0% -19.4%
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz

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