The S&P 500: A Recap of Recent Market Activity

The S&P 500, a key market indicator, experienced significant developments this week. On Friday, it broke below its 200-day moving average for the first time in over six months, while also erasing all gains achieved during a strong summer rally that peaked in late July.

Downturn in Numbers

Closing at 4,224.16 on Friday, the S&P 500 saw a decline of 53.84 points or 1.26%. This drop marked the index's lowest closing level since June 1 and the first close below its 200-day moving average since March 17 (which had stood at 4,233.17). With a 2.4% decline over the week, it endured its worst performance in a month and has now finished lower in five out of the past seven weeks.

Perspective on Performance

Data from FactSet reveals that the index has fallen by 6.8% from its closing high on July 31. However, it is important to note that the S&P 500 remains up by 10% since the beginning of the year. This information provides some context amid recent setbacks.

Analyzing Market Signals

Although dropping below the moving average typically indicates a bearish sentiment, technical analysts suggest that other indicators point to an oversold market. This may signal the potential for a rebound and an upward trend as early as next week.

Craig Johnson, the chief market technician at Piper Sandler, notes that the market has become quite oversold in his perspective.

Unusual Trading Patterns Indicate Potential Turnaround for Stocks

According to a proprietary Piper Sandler database, only 18% of U.S.-traded stocks with a market capitalization greater than $25 million and a share price above $2 are currently trading above a 40-week moving average. This level has been reached just 10 times since 1987, making it exceptionally rare. Such a high number of stocks trading at low levels in relation to their recent performance often suggests that a turnaround could be imminent.

The data from FactSet reveals that more than 65% of S&P 500 stocks were trading below their 200-day moving average as of the last trading day. This is the highest reading in a year and further supports the notion of a "washout" for stocks, as described by Johnson and others.

In March, when the index last closed below its 200-day moving average, it only spent six sessions beneath it. The S&P 500 closed below the average for five consecutive days from March 9 to March 15, and then dropped below it again for one day on March 17, according to data from Dow Jones.

These unusual trading patterns indicate that now may be the time to consider investment opportunities. Investors should take note and carefully evaluate the potential for a turnaround in the stock market.

Also read: A contrarian 'buy signal' for stocks has been triggered, as investors flee cash, says Bank of America