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Key Points
- On March 19, the S&P 500 slipped below its 200-day moving average for the first time in over a year.
- Historically, this signal has led to very different outcomes depending on what happens next, with some breaks quickly reversing and others leading to further drawdowns.
- With geopolitical tensions rising and volatility building, the next few trading sessions could determine whether this is a short-term shakeout or the start of something more serious.
- Special Report: This stock is mispriced by billions
On March 19, the benchmark S&P 500 index closed below its 200-day moving average for the first time since March of last year. With equities already choppy at the start of the year, this technical break will have made investors even more nervous.
However, the break itself is only part of the story. What matters far more, and what history clearly shows, is how the market behaves in the days and weeks that follow. Let's take a closer look at what's followed in the past when this has happened and what investors can expect next.
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Why the 200-Day Moving Average Matters
The 200-day moving average is not just another technical level. It represents the average price investors have paid over the past 200 sessions, and its direction is seen as a key bellwether of the broader equity market. When the index is trading above it, sentiment tends to be bullish, and dips are often bought. However, when it falls below, that dynamic shifts quickly, with risk appetite disappearing and the bulls retreating from positions.
Because of this, large institutional investors often use the level as a trigger for adjusting exposure. That's why breaks of the 200-day can sometimes lead to accelerated moves, particularly if they are confirmed by follow-through selling. That said, not every break leads to a sustained downturn, and recent history shows just how varied the outcomes can be.
What Happened the Last Few Times
Looking at the most recent examples, two clear patterns emerge. Either the index quickly recovered, returned above the moving average, and continued to rally, or it sank into a multi-month drawdown.
In early 2023, for example, the S&P 500 briefly dipped below its 200-day moving average on two separate occasions. In both cases, the index reclaimed the level within a matter of days and went on to rally strongly in the weeks that followed. A similar pattern played out in October 2023, where the index stayed below the level for just a week before recovering and pushing higher.
These are examples of failed breakdowns. The signal initially looked bearish, but the lack of follow-through selling not only invalidated it but also often fuelled an even stronger rebound.
On the other side of the spectrum are the more sustained breaks. Take March 2025, for example: the S&P 500 broke below its 200-day moving average and fell roughly 15% before stabilizing. April 2022 will be a particularly painful memory for many investors; this break marked the beginning of a much deeper drawdown that ultimately saw the market fall more than 20% and remain stuck under the moving average for several months.
These are examples of confirmed breakdowns, where the inability to reclaim the 200-day moving average quickly led to a clear shift in trend and a more prolonged period of weakness. The key takeaway is that the break itself is not the signal; the reaction to it is.
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How to Think About the Current Setup
In the current setup, it is still too early to draw firm conclusions. The day of the breakdown, March 19, the index interestingly managed to close out its intraday lows. That suggests that buyers are still active, at least for now.
At the same time, the broader backdrop is far from stable. Rising geopolitical tensions in the Middle East have sent oil prices soaring, in turn reigniting concerns about inflation. That dynamic creates a difficult environment for equities, as it increases the likelihood that the Federal Reserve may need to keep interest rates elevated for longer.
Volatility is also beginning to pick up. The Cboe Volatility Index (VIX), also known as Wall Street's "fear gauge," has been trending higher since December and is now up roughly 80% over that period, indicating that investor anxiety has been consistently building beneath the surface.
The Next Few Weeks Will Be Critical
Investors looking to position around this move should consider the Vanguard S&P 500 ETF (NYSEARCA: VOO) or the SPDR S&P 500 ETF Trust (NYSEARCA: SPY),both of which offer an easy way to trade the S&P 500 Index through this key inflection point.
Much will depend on how oil prices behave in the meantime. If the S&P 500 quickly reclaims its 200-day moving average by the end of March, history suggests this could be another false breakdown and a precursor to a fresh rally. However, if the index fails to get back above the average, the risk of a more sustained correction increases significantly.
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