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Published On: Wed, Oct 15th, 2014

S&P 500 investors increasingly focusing on technicals as the benchmark breaches key levels

The Standard & Poor’s 500 closed below its 200-day moving average for a second day in a row, signaling further losses are highly possible.

The Standard & Poor’s 500 closed below its 200-day moving average for a second day in a row, signaling further losses are highly possible.

In the absence of earnings or other economic data to be used as guidance, investors are increasingly focused on technicals. The S&P 500 is not painting a bright picture in this respect. Yesterday, the US benchmark broke through the $1895 key support level, closing below its 200-day moving average. The latter, unbreakable in the last couple of years capping several selloffs, failed this time.

The three-week drop in the S&P 500 erased $1.5 trillion of stock value and pushed the benchmark to extended losses. On Monday, the S&P 500 closed by shedding 1.7 percent, to $1,874.75. The index attempted to reclaim some lost ground today, but sellers re-emerged in the second half of the US trading session and the S&P 500 closed at $1884.37, a 0.67 percent gain for the day, after touching a high of $1899.32

The US benchmark’s slump below the key technical level does not necessarily guarantee further losses, but it can arouse anxiety in investors already concerned over the grappling global growth, with the Federal Reserve considering an interest rate hike. The S&P500 dropped below its 200-day moving average twice in 2012, recovering within two-week periods afterwards.

The S&P 500 marked its fifth slump in six days, as Fed officials announced in the weekend that they were considering a delay in rising borrowing costs, owing to the looming global slowdown. The central bankers’ message revealed the rising concern about the ability of the American economy to withstand weakness outside the US; as a result, the index plunged to its lowest level since May.

About 57 percent of S&P 500 stocks are trading below the 200-day moving average. Moving averages are levels that are considered bullish when succeeding to contain selling pressure. The selloff can, therefore, subside if the benchmark returns back above its 200-day MA.

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