SPX 500 Stands on 200MA; Great Trend Analysis of US Market
After the recent rebound, the $S&P 500(.SPX)$ has returned to levels similar to those seen just before Trump won the U.S. election last November. In effect, after a "Trump rally" that priced in the positives—such as deregulation and tax cuts—and the recent pullback that began to price in risks like tariffs, deficit reduction, immigration restrictions, and broader policy uncertainty, the market has round-tripped to where it started.
To be honest, the potential announcement of tariffs on April 2nd. Intuitively, if the market continues to rally leading into April 2, then the reaction will likely depend on whether the tariff measures exceed or fall short of expectations. But if the market pulls back again before that date, the tariff announcement might ironically serve as a trigger for a rebound.
Given the difficulty in predicting the tariff policy path, let’s try a simpler way—some basic technical analysis on the 200-day moving average (200MA).
The $S&P 500(.SPX)$ closed back above its 200-day moving average on Monday, after spending 10 consecutive trading sessions below it. The 200MA is widely viewed as a dividing line between bull and bear markets.
Source:Tiger Trade, Data as of March 25th 2025
But beyond sentiment, it also plays an important role in positioning. Many traditional investors—not just quants—use it to inform asset allocation. Whether the index is above or below the 200MA often determines whether trend-following or mean-reversion strategies are in play.
For example, many trend strategies only go long when prices are above the 200MA, and exit or flip short once they fall below.
Similarly, factor-based strategies often use the 200MA as a proxy for market risk sentiment: if above the 200MA, beta exposure may be increased; if below, reduced. As such, if the market breaks below the 200MA and fails to recover quickly, reflexivity can turn it into a self-reinforcing bearish trend.
The 200MA also influences volatility and options markets. When the market is below the 200MA, realized volatility tends to rise, which pushes up implied volatility (IV) in the options market. As shown below, since October 1999, the $S&P 500(.SPX)$ has traded above its 200MA on 4,569 days (~71.3%) and below it on 1,838 days (~28.7%). When above the 200MA, average daily volatility is 1.07%; when below, it jumps to 2.69%.
Source：US Tiger Securities
There have been 95 distinct periods where the $S&P 500(.SPX)$ traded below its 200MA (excluding consecutive-day stretches as a single event). Most of these episodes were short-lived, with a median duration of just 2 days and 75% lasting fewer than 11 days. But a few extreme events (e.g., the financial crisis or major bear markets) lasted hundreds of days.
Source：US Tiger Securities
If we zoom in on cases where the $S&P 500(.SPX)$ spent 10 or more consecutive trading days below the 200MA, we find 26 such instances since 1999. The chart below summarizes the forward returns after these signals:
1 month later: Returns skew slightly negative, with a long downside tail. Median return is -2.63%.
3 months later: Return distribution is more balanced. Median is +0.85%, but with wide variance.
6 months and 1 year later: Median returns turn meaningfully positive, at +5.76% and +9.54% respectively.
Source：US Tiger Securities
From this, it seems that a 10+ day stretch below the 200MA isn't necessarily a strongly bearish signal—but it does suggest near-term downside pressure (particularly over a 1-month horizon). However, this picture changes significantly once you incorporate valuation.
The next chart plots forward returns against the S&P 500’s forward P/E ratio at the time of the 200MA break:
1M and 3M forward returns: Weak negative correlation with valuation. Short-term performance is driven more by sentiment, policy shifts, or other catalysts.
6M returns: More pronounced negative correlation. Most cases with P/E < 16 showed positive returns, while P/E > 18 carried more downside risk.
1Y returns: Clear negative correlation. Nearly all low-valuation regimes (P/E < 15) saw positive returns; high-valuation regimes (P/E > 18) were more likely to see losses.
The red-marked dot in the chart corresponds to October 1999—during the dot-com bubble—when valuation was elevated but the market didn’t peak until late 2000. The green-marked five points correspond to: Oct 1999, Sep 2000, Jan 2002, Feb 2022, and Apr 2022—all high-valuation breakdowns.
Source：FactSet, US Tiger Securities
The red line marks today’s forward P/E at ~20.2x. Historically, when the market breaks below the 200MA at this valuation level, future risk tends to rise significantly. The next chart tells a similar story, but instead of forward returns, it shows maximum drawdown after the signal. The relationship becomes clearer at the 6M and 1Y horizons, where higher valuations at the time of the breakdown are associated with deeper drawdowns.
Source：FactSet, US Tiger Securities
In conclusion, when combining technical reflexivity, behavioral momentum, and valuation-based anchoring, the outlook becomes clearer: while the market may still rally in the short term, 2025 could remain a challenging year for U.S. equities.
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