S&P 500 Approaches 200-Month Moving Average: Technical Analysis

(Bloomberg) -- A decline in the Standard & Poor’s 500 Index below its 200-month average would probably signal an additional slump of as much as 6.5 percent, according to Chicago-based Technical Analytics Inc.The measure finished at 1,028.12 yesterday. That’s 1.2 percent more than 1,015.58, its average close on the 26th day of the past 200 months, according to data compiled by Bloomberg. Falling below that level would presage a drop to about 990, said Al Bicoff, the president of Technical Analytics. If that is breached, the S&P 500 might slip to 950, he added.

The S&P 500 plunged 25 percent from the start of the year through March 9 before rallying 52 percent in the steepest advance since the Great Depression. The index has traded higher than its 200-day moving average since July 13 and rose 17 percent above it yesterday, the most since April 1999. That distance has increased the importance of the 200-month average, which is less studied by analysts, Bicoff said.
“You have to look at the bigger picture now,” Bicoff said. “You are way above the 200-day now. The 200-day doesn’t have any significance at these price levels.”The S&P 500’s current 200-month moving average is also significant because it’s near 1,014.14, the so-called 38.2 percent retracement level for the bear market that began in October 2007, Bicoff said. Fibonacci analysts, who use a system pioneered by 13th-century mathematician Leonardo Pisano, make forecasts based on how an index performs when it recovers 38.2 percent or 61.8 percent of a retreat.