After nailing our next downside target yesterday, the S&P 500 closed below its SMA200.  This normally bearish signal attracted a lot of attention. So, I thought it might be interesting to see what past instances have looked like, and how serious an issue it might be for the market this time.

SPX has dropped and closed below its 200-day moving average 18 distinct times since its 2009 lows. The dips ranged from 1 day to 62 sessions, with the average being 18.  And, the extent of the subsequent cycle* move ranged from -14.35% to +2.15% with an average of 3.87%. The declines averaged 0.29%/day, which adjusted to “no change” when including head fakes.There were three head fakes, defined as a close below the SMA200 which was followed by a close back above it the very next day.  These losses would have been -0.07%, -1.80% and -2.15%, assuming one didn’t cover until the following session’s high.  Obviously, tighter stops would have meant much smaller losses.

If we toss out the three headfakes, the average decline of the other 15 instances was 5% over a period of 22 sessions.  A 5% drop from yesterday’s close would be 129 points, to 2451.  Interestingly, this is within a few points of our next downside target — should SPX fail to hold its SMA200.  Below that, things get really ugly.

If it does hold 2590, there’s a very good chance it’ll join the ranks of the head fakes.  With the futures up about 20 points on VIX’s potential drop through support, SPX will gap back above its SMA200.  The more important question is: if VIX holds its support, how much further could SPX drop?continued for members…

A reminder re the big picture, should the SMA200 fail to hold:

UPDATE:  10:50 AM

SPX is hanging around, being driven primarily by VIX.  I’m going to take a 45 minute break, will be back with more updates.

UPDATE:  2:00 PM

I don’t look at the DJIA very often, as I consider it completely corrupt and manipulated. Whereas in early Feb, when SPX and ES were tagging their SMA200s, DJIA only got within 566 points (2.5%)  Because SPX bounced so sharply off its SMA200, DJI didn’t get a chance to establish this important support.

Yesterday, it made a slightly lower low 23,334 vs 23,360 and tagged its SMA200 at the same time.  It’s certainly no guarantee that it’ll continue to bounce here.  But, it’s currently hanging just above its 2.24 Fib at 23,781. Like SPX and ES before it, this is an important line in the sand.  If DJI is able to hold it, it bodes well for the overall market.

Also, we should note that the 10Y2Y spread has finally reached potential support — the .786 Fib retrace of the rise from -0.19 to 2.91.Last, SPX has reached the red .618 — one of my favorite spots for a rebound following a drop to a 1.272 extension.  We’ll keep an eye out for a reversal here…but, it goes without saying that bears are out of luck if it can’t drop back through the SMA200.Other indicators are waffling, and could break either way.  VIX’s white channel held, and it’s threatening to retake the SMA10.

While, FB is still following the falling channel within a falling channel — but, escape is only a few pennies away.)

And, TSLA has regained its TL support on its promise that it will “call shareholders in the morning.”

* cycles were measured from closing price on the first day it closed below its SMA200 to the first day when it closed back above it without immediately falling back below.