200 Day Moving Average

How important is it that the SPY closed below the 200 day moving average for the first time since July 2009?  Moving averages  give us an objective, visual reference point, based on a time constant, to which price is compared.  It is one of the market’s cruelest tendencies to trap a large group of amateurs leaning the wrong way when a technical event – such as breaking a key moving average for a few periods – is all too obvious.

We already knew the market was in trouble before it closed below the 200 DMA, moving averages are lagging indicators.  While there is nothing bullish about today’s action, do not place too much emphasis on one simple indicator.  Only price pays!  Notice where the SPY breaks below and  the direction of the 40 week (5 days per week x 40 weeks = 200 days) moving average on the chart below.