The stock market is falling because there is something scarier than taxes, cuts and contagion


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The S&P 500 closed for the first time since June 18 below its 50-day moving average. For the traders, it was very scary.

Spencer Platt / Getty Images

Wall Street has found something scarier than tapering, taxes and

Evergrande Group in China

combined. This is called the 50-day moving average.

Predictions of an impending doom wall street talker continued last week. The reasons for a pullback are many: the stock market has rebounded for too long and has climbed too slowly, the Federal Reserve is on the verge of removing bond purchases that have helped support markets, taxes are poised to increase, economic data slows down. None of this really left a mark.

But then the

S&P 500

fell 0.6%, to 4,432.99, on the week, while the

Dow Jones Industrial Average

fell 0.1%, to 34,584.88, and the

Nasdaq Composite

fell 0.5% to 15,043.97. For the S&P 500, this was the first close since June 18 below its 50-day moving average, a technical measure of the previous 50-day closings that often ends up serving as support or resistance and is located currently at 4436.35. For the traders, it was very scary.

The fact that the drop also happened on the option expiration day – when bets on options expire and roll over, usually on a volatile day – also makes it difficult. Since May, options expiration has been a time for the S&P 500 to take a quick test of its 50-day moving average before rebounding higher. And when I say fast, I mean fast, because it usually took the index a day, maybe two, to bounce back.

“The 50-day discussion of MA has been hammered into our heads with every withdrawal,” writes Frank Cappelleri, office strategist at Instinet. “And while we might be fed up with hearing about it, the drop buying around the line has been a real phenomenon.”

This time it’s different. The S&P 500 stayed almost 50 days longer, notes Jonathan Krinsky, chief market technician at Bay Crest Partners. He’s been sitting next to him for about six trading days now, with no big drop or big rebound. “The current setup looks a bit more like a consolidation on the 50 DMA, as opposed to the fast ‘V-shaped’ dips,” Krinsky writes. “What we’re saying is the way we got here today is a little different than the last four or five times.”

Yet Krinsky recognizes that a close below 50 days is not enough to panic. That’s because the S&P 500 has now gone 218 days without two below-par closeouts, the second longest streak since 1990. We won’t know if that streak will end until trading ends on Monday.

The market has plenty of excuses for going over 50 days, if it so chooses. Maybe Evergrande (ticker: 3333.Hong Kong), the struggling Chinese real estate developer, will turn out to be Lehman for a while and drag global markets with him. Maybe the Fed will surprise everyone and start slowing down next week. Maybe something is hiding out there like the Baba Yaga from old fairy tales, and maybe that looks a lot like Keanu Reeves.

But maybe all of the weakness and worry in September is a good thing, preparing the market for its next run. “The ACWI is oversold again and sentiment is not too optimistic,” writes Tim Hayes of Ned Davis Research, commenting on the MSCI All-Country World Index. “The market’s resilience in the face of negative seasonality in September could be the forefront of a bullish response to seasonal trends that become favorable in the fourth quarter.”

We just have to get there first.

Write to Ben Levisohn at


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