Where the stock market might bottom, according to this reliable technical indicator

Where the Stock Market Might Bottom, According to This Reliable Technical Indicator

By Steven Orlowski, CFP, CNPR

As markets continue to search for direction amidst economic uncertainty, inflation fears, and geopolitical tension, investors and analysts alike are asking the same question: Where will the stock market bottom out? While fundamentals like earnings and macroeconomic indicators remain crucial, one tried-and-tested technical indicator is offering a compelling clue—the 200-week moving average (200WMA).

The Power of the 200-Week Moving Average

For seasoned technical analysts, the 200-week moving average is a trusted long-term trend indicator. It represents the average closing price of a security—or, in this case, a broad index like the S&P 500—over the past 200 weeks (roughly four years). This moving average acts like a gravitational line in the sand, offering strong support during market downturns and resistance during prolonged rallies.

Historically, the 200WMA has marked significant bottoms in the market. During the bear markets of 2002, 2008-2009, and even the COVID-induced panic of March 2020, the S&P 500 either touched or briefly dipped below the 200WMA before staging powerful recoveries. It has proven to be one of the most reliable technical support levels across multiple market cycles.

Where Is the 200WMA Now?

As of early April 2025, the S&P 500's 200-week moving average is hovering around the 3,750–3,800 range. The index is currently trading above that level, but should downward pressure persist due to rising rates or slowing earnings, that level becomes a focal point for technical traders and long-term investors.

If the market were to revisit the 200WMA in the coming weeks or months, it could serve as a key psychological and technical support zone. In fact, many institutional buyers wait for this moment to step back into equities—viewing the pullback as a long-term buying opportunity.

A Confluence of Signals

The significance of the 200WMA is further amplified when it coincides with other technical signals. For instance, if relative strength indicators (RSI) dip into oversold territory, or if sentiment gauges hit extreme pessimism, a bounce off the 200WMA becomes even more likely.

Additionally, Fibonacci retracement levels from the 2020 low to the 2022–2024 bull market peak often cluster near the 200WMA zone. This confluence creates what technicians call a “confluence support zone,” reinforcing the idea that a bottom could form around this area.

Caution: No Indicator Is Infallible

While the 200WMA has an impressive track record, it's not foolproof. In extreme bear markets, like 2008, the index pierced the 200WMA significantly before bottoming out. Investors should use it in conjunction with other indicators and a broader understanding of macroeconomic conditions.

Also worth noting: in an environment driven by algorithms and high-frequency trading, temporary breaches of major support levels can occur rapidly, triggering panic before a swift reversal.

What Investors Can Do

For long-term investors, the 200WMA can serve as a “patience point.” Rather than trying to catch every twist and turn in the market, waiting for a test of this level—and seeing how price reacts—can offer a more measured entry point.

Traders, meanwhile, often look to scale into positions near the 200WMA with tight stops, anticipating a bounce. Some may also employ options strategies, such as cash-secured puts, to take advantage of heightened volatility around these levels.

Bottom Line

While no single indicator can predict the future, the 200-week moving average has consistently acted as a beacon during turbulent times. If history is any guide, this level—currently in the 3,750–3,800 range for the S&P 500—could once again mark the area where the market finds its footing.

For investors navigating the current volatility, keeping an eye on this critical technical level may help separate signal from noise—and offer a potential road map through the storm.

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always consult with a financial advisor before making any investment decisions.