Chart of the Day - Monday, October 23, 2023

Today’s Chart of the Day was shared by David Keller (@DKellerCMT). The S&P 500 remains below its 200-day moving average after closing below it on Friday for the first time in seven months. David explains why traders fixate on this seemingly arbitrary moving average. Breaking the 200-DMA doesn’t guarantee a major decline, but every major decline starts with a break of the 200-DMA before intensifying. One of the wealthiest traders, Paul Tudor Jones, once explained how the 200-DMA rule kept him out of the market during the crash of 1987; “My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: ‘How do I keep from losing everything?’ If you use the 200-day moving average rule, then you get out. You play defense, and you get out.”