Going back to last November's election, the S&P only remained below the 50 day moving average when there were TWO separate events that unnerved traders/investors. The first was the election of the current President which was greeted as a negative for business. The second was the drama surrounding the so-called, "fiscal cliff" drama unfolding in Washington D.C.
Once we moved past those two events, there has been only one day in which the S&P has CLOSED below the 50 day moving average. That occurred in April of this year and even then, it was only barely beneath this key level.
Today's shellacking, coming on the heels of a huge down day yesterday, has sent the index down quite significantly below the 50 day. As a matter of fact, it also fell below the former resistance level which had temporarily stymied its upward progress back in April before it gave way in May.
Tomorrow's close is therefore going to be significant.
That strong overhead bearish reversal pattern that formed in May has taken on new significance with this close below the 50 day moving average. We might just be seeing the shift from a "BUY the DIP" mentality to a "SELL the RALLY" mentality. If that is the case, it is going to manifest itself quite soon. We will then see overhead resistance levels capping rally efforts while support levels on the downside are broken as the market traces out a deeper move lower.
Based on what I am seeing in this chart, if this market cannot recapture 1620-1618 before the closing bell rings tomorrow, odds would favor a continuation of the move lower down into a congestion range that was in place back in March/April. I have noted that on the chart.
As you can see, the upper portion of that range happens to also coincide with the 38.2% Fibonacci Retracement level of this entire leg higher since late November of last year. My guess is that the market will hold this level if it does indeed get there. If not, well, that is another different story....
During times of market fear, (the rising VIX tells us that we are FINALLY seeing some of that among the equity crowd), the bond market tends to be a safe haven with flows coming out of stocks and into bonds. Right now, flows are coming out of stocks, bonds and commodities; basically out of everything except cash and the Swiss Franc!
We'll see how long that lasts before the "stocks are cheap, cheap, cheap" cry starts up again.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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