- The S&P 500 and Nasdaq 100 are hovering near their 200-day moving averages, a key technical support level.
- The 200-day moving average is an important indicator of potential trend reversals in stocks.
- Traders believe an immediate bounceback is needed for stocks to avoid further declines.
The stock market has entered the danger zone as the S&P 500 and Nasdaq 100 hover near their 200-day moving averages.
Both indexes are trading at the key technical support level after a 6% decline in the S&P 500 and a 9% sell-off in the Nasdaq 100 since mid-February.
The 200-day moving average is a closely watched technical indicator that helps identify the long-term direction of a trend.
When securities fall below their 200-day moving average, it sends a warning to traders that the prior uptrend in price could be on the verge of reversing course and establishing a downtrend.
The Nasdaq 100 closed below its 200-day moving average on Thursday for the first time since March 2023, while the S&P 500 tested the level multiple times this week.
As of Friday morning, the S&P 500 is trading at 5,728.90, just a few points below its 200-day moving average of 5,732, while the Nasdaq 100 is trading at 20,056.35, below its 200-day moving average of 20,246.83.
Stockcharts.com
It’s a potentially make-or-break moment for the stock market as traders assess the impact of President Donald Trump’s tariff policies.
According to technical analyst Katie Stockton of Fairlead Strategies, the S&P 500 needs to stage a decisive bounce above this technical level to prevent further downside.
“Our short-term indicators suggest it will act as a staging ground for a brief oversold bounce,” Stockton told clients in a note on Friday. “Nevertheless, a close below 5,783 today would leave a breakdown pending confirmation next Friday.”
Adam Turnquist, chief technical strategist at LPL Financial, highlighted in a note this week that an index that equally weights the Magnificent Seven mega-cap tech stocks — Nvidia, Apple, Alphabet, Meta Platforms, Amazon, Microsoft, and Tesla — is also trading at its 200-day moving average.
If it falls below the threshold, it would suggest investors should look elsewhere for leadership in the stock market.
“A violation of the 200-dma would imply that the Mag Seven’s leadership status has been revoked,” Turnquist said.