The S&P 500 is flirting with a key support threshold — and a failure to hold it could lead to more selling
- The S&P 500 is flirting with a key technical support level that traders have their eye on: the 50-day moving average.
- The benchmark equity index opened lower on Thursday as tech stocks led the market decline, but selling dried up near the 50-day support level around 3,340.
- If the index decisively falls below the 50-day moving average, traders will likely look to the 200-day moving average to serve as support, which would represent a potential decline of 8% from Wednesday's close.
- One sign doesn't bode well for the S&P 500: the leading Nasdaq 100 index opened the day below its 50-day moving average, something it hasn't done since mid-April.
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The stock market is in the midst of determining if its historic rally will power on or start to break down.
On Thursday, the S&P 500 traded lower by more than 1% — led by technology stocks — but managed to find support right along its 50-day moving average around the 3,340 level.
The 50-day moving average is a widely followed technical indicator that smoothes out price action and represents the average closing price of the previous 50-days.
Traders often look to the 50- and 200-day moving averages as important support levels when a security is trading above the averages, and important resistance levels when a security is trading below the averages.
If the S&P 500 decisively trades and closes below its 50-day moving average, traders will look to the 200-day moving average, currently around the 3,100 level, as the next level of support. A fall to the 200-day moving average would represent a decline of 8% in the S&P 500 from Wednesday's close.
Alternatively, if the index manages to hold and bounce off of the 50-day moving average, traders will look for the S&P 500 to continue its march higher, retest its September 2 record-high, and extend its historic rally to new all time highs.
But one glaring sign suggests that the S&P 500 may move below its 50-day moving average: the Nasdaq 100. Of the 3 most popular US stock market indexes, the Nasdaq 100 has led them all higher since the March 23 bottom as technology stocks have driven most of the upside.
On Thursday, the Nasdaq 100 opened below its 50-day moving average and stayed their throughout Thursday's trading session. Barring a late-day recovery, today will mark the first time the Nasdaq index has traded below its 50-day moving average since April 13.
If tech stocks lead the market lower like they did higher over the past 6 months, then expect the S&P 500 to follow its lead and trend below its 50-day moving average.
But for now, as of Thursday afternoon, the S&P 500 is holding its ground.
