THE S&P 500’s 200-day moving average is the line in the sand as the bulls and the bears fight over the US stock market’s direction. It will face one of its stiffest tests this week with Greece’s debt crisis reaching a climax.
After setting its closing high for the year on April 29, the S&P 500 has lost 7 per cent. Wall Street typically defines a drop of 10 per cent or more from a recent peak as a correction.
The benchmark S&P 500 hit its lowest point right on its 200-day moving average in volatile trading on Thursday. The index then rallied 1 per cent from that session low to close on Friday at 1,271.50. It also scored its first weekly gain in the last seven weeks.
At Friday's close, the S&P 500’s 200-day moving average was around 1,259. If the level holds, it could be a springboard for stocks to rally.
“We seemed to have bounced off that level of concern that people were watching,” said David Joy, chief market strategist at Ameriprise Financial. “At least for now, that is a little bit of evidence that these problems are solvable and markets could move higher.”
Bond markets remain anxious about a Greek default. Most economists are overwhelmingly skeptical that Greece can ever repay its mountain of debt of €340bn.