By Giles Coghlan, Chief Currency Analyst at HYCM
The Daily 200 moving average on the S&P500 is in keen focus right now. The reason is that it offers a technical crossroads in price. Stay above and it is bullish (buyers in control), fall below and it is bearish (sellers in control). Historically, the level has been significant as during the last two recessions of 2000 and 2008 it acted as a ‘barrier’ to any attempt at a bullish recovery. It is the place that bull rallies went to die
Therefore, the level remains in even keener focus in 2020 as it also coincides with the big round number of 3000. It should also be a key area to look at to confirm the so-called ‘V’ shaped recovery hopes. A ‘V’ shaped recovery is one where prices recover swiftly.
The place where bull rallies fade
See the chart below for the 2008 and 2001 recessions and see how the 200DMA on the S&P 500 contained price.
Therefore, going forward we should expect a battle over this level. A clean break and rise above will be great news for the bulls. For traders still short the S&P500 from lower levels and in a losing position this might be the region where they would consider closing their short positions. A break of the 200DMA and close above the level on the daily chart could be a technically sensible place to exit shorts. On the other hand, for those traders looking to short the S&P500, the 200DMA is a low-risk high reward place to initiate shorts. (with stops riding above the 200DMA). Either way, expect this area to be in focus over the next few days as the bulls and bears battle it out.
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