Home > What To Do When the S&P 500 Sinks Below Support and the 50-Day MA

What To Do When the S&P 500 Sinks Below Support and the 50-Day MA

It looks like the S&P 500 stock index price just fell through the year-long rising support level and the 50-day moving average, which could signal a reversal from a bullish to a bearish trend.

It’s support, Jim, but not as you know it.

Some traders see price support only in terms of horizontal lines, but there is such a thing as rising support, which I have plotted as a black line on the following chart — as fairly as I can — to show that America’s S&P 500 index price just broke below it. The price has also broken through the 50-day moving average, which I’ve added in red.

S&P 500 Chart (source: Yahoo! Finance)

What Is the S&P 500 Index?

The S&P 500 is a stock index that tracks 500 large companies listed on US exchanges. Your broker might let you trade this index long or short under other names such as “US 500” or “SPX 500”.

Should You Buy or Sell the S&P 500 Right Now?

Every time the S&P 500 price has hit the support line from above in the past year, it’s bounced right back up, so buyers would have been right to “buy the dip”. On one occasion (in March) the price breached the support level yet still bounced back up. This is the bullish case to buy the S&P 500 index.

Usually, a break downward through support is taken to be a bearish signal, so you should be shorting at this point in anticipation of further falls. This is the bearish case to sell the S&P 500 index, which is backed up by fears of inflation (which could send interest rates higher) and potential contagion from China's Evergrande “Lehman Brothers moment” upheaval.

S&P 500 Price Targets

With the gap between the rising support and resistance lines being about 200 points, a bounce back up could send the S&P to 4700 within a month.

If the price breaks decisively below the 50-day MA, short traders could target the 200-day MA which currently sits at about 4100.

Where Can You Buy or Sell the S&P 500 Index?

To buy the S&P 500 “on the dip” or sell it short, you’ll need a broker, so check out these two:


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