On Monday, the S&P 500 closed below its 200-day moving average. A break below the 200-day moving average is a signal that the market is trending down, and some analysts view it as a signal to sell. But it might not be a good idea to race for the exit.
Before the 1990s, a system based on the 200-day moving average proved to be effective, but recent history has shown otherwise – since 1990, the market has actually performed better after a sell signal on a dip below the 200-day moving average.
Before Monday, the last time the S&P 500 dropped below its 200-day moving average was in November 2012…after which the market rallied.
And the same occurred in June 2012 – a dip below the 200-day moving average promptly turned into a trend up.
The S&P 500 just suffered its worst three-day drop since 2011. And while a break below a critical technical level certainly isn’t good news, it might not be quite as bad as it sounds.