Many investors view the 200-day moving average of the price of a stock, commodity, or index as a key long-term technical indicator, and will time their buy and sell decisions based on where the instrument in question is trading relative to this average.
Even some fundamental investors, who normally discount the relevance of technical analysis when it comes to making investing decisions, will pay a measure of attention to the 200-day moving average, for no other reason than that others are doing the same.
As of today, the S&P 500 index is not only approaching its long-term moving average, which is currently at 1449.71, but the benchmark is also testing a one-year uptrend from last July's lows.
While prices may hold, signaling that the near 7% correction from the highs has reached at least a short-term stopping point, it's worth keeping in mind that a clear-cut breakdown from current levels could trigger stop-loss and chart-related selling that turns a temporary pullback into something far more serious.
Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.
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