Market gurus are eager to see if a technical signal that helped tactical traders wring profits from last year’s market rout will continue to work in 2023, as stocks struggle to hold ground Monday after breaking a streak of weekly losses.
In this case, the moving average, which is a gauge of the market’s long-term direction, served as a reliable indicator that the latest flash-in-the-pan rally — often driven by signs of cooling inflation or fleeting hopes for a less-aggressive Federal Reserve — had exhausted itself. In many instances, shorting stocks at the 200-day moving average offered a reliable source of profits during one of the most dismal years for markets in recent memory.Since the slope of the 200-day average represents the dominant directional trend for U.S. equities, when stock cross that level it signaled they were deviating from the underlying downward trend, according to Krinsky, in an interview with MarketWatch over the phone.
“A sustained break above the 200-day moving average would imply that investors are becoming fundamentally more optimistic about the market,” said Tom Essaye, founder of the Sevens Report.
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