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Watch the S&P 500’s moving average

A moving average can tell you a lot.
Don’t just look at the Dow Jones Industrial Average. It’s the best-known financial statistic, but it doesn’t tell the whole story. The Standard & Poor’s 500 Index tracks a much larger and much more diverse group of stocks than the DJIA’s mere 30 industrial companies. It’s regarded as a pretty good bellwether for the entire United States economy.
If you go to Yahoo! Finance and mess around a bit with the chart for the S&P 500 by adding a simple moving average for the last 365 days (the red line), here’s what you’ll see for the period from 1995 to now:
365-day moving average for S&P 500
The purple arrows that I Photoshopped into the chart mark the points when the S&P 500 dropped significantly below its 365-day SMA. The green arrows mark the points when the closing price only briefly dipped below it. As of today, the closing price is a little bit more than 1% under the Red Line of Doom™. Watch closely this week, because I think this chart’s going to get another purple arrow.
Way to go, Washington.

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