By Graham Summers, MBA | Chief Market Strategist
Yesterday, I commented that it was “bounce or big trouble” time for stocks.
The reason for this? The S&P 500 had fallen 5% to test its 200-day simple moving average (DMA): a critical trendline for the bull market.
What made this a critical situation? After all, a correction of this size (5%) is a relatively common occurrence. On average stocks drop by 5% at least once per year. So this should have been a clear “buy the dip” opportunity, right?
Not exactly.
Under the hood, the market was in a very precarious situation. Only half of its sectors remained in uptrends. Moreover, many individual companies had seen their share prices decline by 20% or more.
Put simply, while the overall indices were only down 5%, beneath the surface, stocks were trading like it was the start of a bear market. As a result of this, the test of the 200-DSMA was absolutely critical. If stocks didn’t bounce there, then we needed to prepare for a real bloodbath in the markets.
Fortunately, we got the bounce with the S&P 500 hitting its 200-DSMA briefly on an intraday basis before buyers came in.
What now?
Stocks are up this morning, but we need to see some follow through on this bounce. After all, one day of gains isn’t a big deal for stocks. So while the bounce has helped, questions remain as to whether or not it will be sufficient to stop the downward momentum.
The good news is that high yield credit, which usually leads stocks, has NOT broken down in any significant fashion. This suggests that stocks could catch a major bid if they can look past the threat of tariffs and a trade war to the fact that underlying macro conditions have not worsened much if at all.
If you’re looking for a high octane tool to determine whether or not to “buy the dips” during market correction, my proprietary Crash Trigger has got you covered. It tracks certain key developments that register before every major market meltdown.
I detail them, along with what they’re currently saying about the market today in a Special Investment Report How to Predict a Crash.
To pick up a free copy, swing by:
www.phoenixcapitalresearch.com/predictcrash-leadgen
Best Regards
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
