Remember last month when the chatter on Wall Street was dominated by the perma-bulls telling everyone what a great year 2014 was going to be? I certainly remember this talk, but so far in 2014 the bulls have been anything but present. Last week, stocks in the S&P 500 Index suffered their worst weekly performance since June 2012, sinking nearly 2.7%. That selling ramped up today. The S&P 500 ended the trading day below the 1,775 mark.
My reading of the chart below tells me that if we fail to get some bullish traction here at this level, then the next step could be a correction all the way down to 1,704, which is the 200-day moving average. If that situation happens, there will be a lot of investors running scared, and that could lead to an even bigger, more massive bout of selling.
Now, I am not saying this scenario definitely is going to occur with stocks. What I am saying is that I think the breaking down of support at current levels is the beginning of a much-needed correction, and that it’s something to keep a very close watch on here if you are invested in stocks.
If you aren’t currently invested, then now is not the time to make your move. You’ll definitely want to play the waiting game a bit longer to see if a full-blown correction takes place. If it does, that is when you’ll want to start putting on your bargain-buying hat and think about doing some shopping.
While the correction might be just underway here in the United States, it already is occurring in emerging markets. The chart below of the iShares MSCI Emerging Markets (EEM) shows the huge drop in the space so far this year. EEM currently trades well below both the 50- and 200-day moving averages, and that’s definitely a bearish sign going forward.
Could the same thing happen to U.S. markets? It certainly can, especially if global growth fails to reignite the way so many pundits have predicted it would. Moreover, if earnings here at home continue to be mediocre, and if forecasts and earnings expectations continue to be sluggish, then the market won’t have the fundamental support that it needs to advance.
The market definitely is undergoing an adjustment. As such, you’ll want to approach your investing decisions with extreme caution.
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