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The financial crisis in China’s leading real estate developer Evergrande has triggered a sharp turnaround in overall stock market sentiment, as the S&P 500 shows falling below its key 50-day moving average.
As the news of the Evergrande debacle gained momentum last Friday, the S&P 500 closed the session below the 50-day moving average for the first time since June. Evergrande’s precarious situation – which includes potential missed debt repayments – escalated over the weekend and prompted investors to realize a global risk rout on Monday. In turn, the S&P 500 fell even further below the 50-day moving average midway through Monday’s session (see chart below).
Miller Tabak strategist Matt Maley points out that the S&P 500 fell below the 50-day moving average on a trading day in March of this year. It rebounded quickly as investors embraced the re-acceleration of corporate earnings from the depths of the COVID-19 pandemic and the Federal Reserve’s ongoing easy policies.
But given new investor worries about the debt ceiling, Evergrande, and the Fed’s policy direction (meeting scheduled for this week), a test of the 100-day moving average (which is below 1 % of current levels) could be in progress. the cards.
If this important technical level is crossed for the S&P 500, strategists argue that it could be sought below for short-term stocks.
Said Maley, “The 100-DMA [day moving average] provided good support to the S&P 500 in September and October of last year. Therefore, he might be able to slow down any slide before things start to go wrong. Having said that, a breakout of this 100-DMA would confirm the breakout of the stock market… and it would signal that a test of 200-DMA (down to 4,100) is almost certain. “
According to data from Yahoo Finance Plus, the 200-day average is only 5.8% tested.
Other traders are taking a more bullish stance in the markets even as they present their first real volatility test in some time. The bulls seem to agree that while short-term pressure in the markets is possible due to the litany of major risks, the fundamentals are such that stocks could rebound until the end of the year.
“I think you might watch the pullback. But I think by the end of the year it’s only going to be a little hollow along the way,” Baird strategist Michael Antonelli said on Yahoo Finance Live. . “In order for you to think this is super bad, you’re going to have to explain why this has a significant impact on the revenue of Visa, Google and Facebook, that we are down 15-20%. [correction]. “
Brian Sozzi is an editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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