Drama in S&P Charts as the Index Closes In on the 200-Day Moving Average

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U.S. stock traders looking for a bottom are staring at a pair of chart indicators that coincided with past rebounds.

The Standard & Poor’s 500 Index closed Monday at 2,057.64, falling within 0.2 percent of its average price over the last 200 days, or 2,053.51. The gauge’s relative strength index, which measures the speed of swings, slipped below 35.5, the lowest reading since December. Technical analysts consider 30 a point where rallies are likely to materialize.

American investors were shaken from a two-month slumber by a global selloff that pushed the Chicago Board Options Exchange Volatility Index up 34 percent, the biggest increase since April 2013. Equities around the world plunged as concern mounted that Greece will exit the euro after shutting down its banks and instituting capital controls.

“A lot of people are looking at” the 200-day average, said Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC. NorthCoast has $3 billion under management. “This seems like a routine pullback after trading at highs all last year and this year.”

Retreats Monday in the S&P 500 and Dow Jones Industrial Average erased their gains for the year as stocks from Shanghai to Frankfurt dropped 2 percent or more. In Europe, the Euro Stoxx 50 Index lost 4.2 percent on Monday, the most since 2011.

The European gauge fell 0.4 percent and the S&P 500 climbed 0.5 percent at 9:54 a.m. Tuesday in New York.

Key Levels

Monday’s decline in the S&P 500, following a period in which shares were pinned in one of the tightest ranges in two decades, pushed the index within 5 points of the 200-day average. Stocks have only crossed the level once since 2012 -- the period of last October’s selloff, which gave way to an 11 percent advance at the end of 2014.

Similarly, after the S&P 500’s relative strength index dropped below 31 on Dec. 16, the index rallied 6 percent to a record.

Investors should ignore the 200-day average and be concerned that the S&P 500 has breached its 150-day level, according to Carter Worth, a New York-based technical analyst at Cornerstone Macro LLC. That level is 2,078.48, about 20 points above the index’s closing level Monday.

“It’s not good on the S&P and the presumption is we’re going lower,” Worth said. Regarding the 200-day level, “We’re down to it and we’re probably going through it,” he said.

Whipped Up

The VIX jumped almost 5 points to 18.85 on Monday, the highest since February. Volatility whipped up as European stock indexes fell between 2 and 4 percent and the S&P 500 dropped to a three-month low, erasing all 2015 gains. Greece closed its banks and imposed capital controls after Prime Minister Alexis Tsipras on Friday called for a July 5 referendum on austerity measures demanded by creditors.

Traders are betting the calm that has ruled American equities for the better part of three years is in danger. The S&P 500 has had zero declines of 10 percent or more since 2011, part of a six-year bull market in which prices tripled.

“The U.S. has woken up a little bit to the risk from Greece,” Nick Kalivas, a senior equity product strategist at Invesco Powershares in Chicago, said by phone. “Europe has been seeing volatility lift with the VStoxx climbing since March, while the U.S. has been much more sleepy and more complacent.”

The VIX has hovered at an average level of 13.7 during the second quarter, extending a four-year decline that began during the last Greek debt crisis, in 2011. Today’s reading of 18.85 is roughly the equivalent of the average level of volatility in 2012, a year the S&P 500 rose 13 percent.

“The smart money still thinks that something is going to get resolved, but it seems a lot less sure of itself, I can tell you that much,” said Mark Sebastian, options trader and founder of Option Pit, a Chicago-based education and consulting firm.

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