MW How ETFs crushed Wall Street's favorite stock-market indicator
By Mark Hulbert
The S&P 500's 200-day moving average is a victim of its own success
Killing the goose laying the golden egg happens often on Wall Street.
The S&P 500 breaking below its 200-day moving average stopped being a reliable bear-market signal because too many investors started using it as a market-timing indicator.
So you should now be skeptical of analysts' beliefs that breaking the 200-day moving average - which the S&P 500 SPX did last Thursday - should instead be considered a bullish signal.
These analysts will claim that the stock market's huge rally to begin this week's trading vindicates their beliefs. But the true lesson of history is that when investors are convinced that the moving-average break all but guarantees strong market gains, the pattern will stop working - a victim of its own success.
No indicator - no matter how good its historical record - works forever. And an indicator's life cycle is shortened to the extent it becomes widely known.
That helps us understand the trading strategy that switches between the stock market and cash according to the 200-day moving average. It stopped working in the early 1990s, as you can see from the chart below. The culprit, according to Blake LeBaron, an economics professor at Brandeis University, was that investors became able to follow the strategy cheaply and easily .
That's crucial because, until then, it was extremely difficult and cumbersome to make this trade, which in turn kept a lid on the number of investors actually following the strategy. For most of U.S. history, trading into and out of the market required the simultaneous purchase or sale of hundreds of individual stocks, a time-consuming and expensive process. What investors today take for granted - buying or selling a basket of thousands of stocks with a single click of a mouse while incurring no transaction cost - was impossible.
That means that the 200-day-moving-average strategy's historical record up until the early 1990s, though undeniably impressive, was largely theoretical. But things changed when broad-market index exchange-traded funds became popular. Followers of the 200-day moving average could buy and sell easily - effectively neutralizing the strategy.
Killing the goose that lays the golden egg happens often on Wall Street. Consider a study that appeared several years ago analyzing roughly 100 profitable investing strategies that were reported in peer-reviewed academic journals.
The study - "Does Academic Research Destroy Stock Return Predictability?" - first measured the out-of-sample, prepublication performance of these strategies over the period between when the studies were completed and when they were published in academic journals. The researchers found the out-of-sample, prepublication returns were 26% lower than in-sample returns, on average.
The researchers next measured these strategies' postpublication performance, finding it to be an additional 32% lower. Taken together, these nearly 100 strategies - each of which had received the equivalent of an academic seal of approval - performed 58% worse after they were published than they did in-sample.
The bottom line? The S&P 500 dropping below its 200-day moving average means what it says - the benchmark is below its average level of its last 200 trading sessions. The future direction from here isn't significantly different than it would be at any other time.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
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-Mark Hulbert
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March 23, 2026 12:32 ET (16:32 GMT)
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