The common (non-medical) definition of the term schizophrenia is a state of things characterized by the coexistence of contradictory or incompatible elements. And while this definition isn’t precise, I don’t think that many market participants would object to describing this market as schizophrenic.

So far this week, we’ve witnessed some very strong buying in stocks that’s pushed the S&P 500 Index back above its 50-day moving average. Yet, as you can see by the chart here of SPX, the path toward the current 1,100 mark has been anything but smooth.

In fact, just last week, we saw stocks take a major tumble, with the SPX falling nearly 4%. That decline came after a protracted period of high-volume buying that lifted the market off of its July lows and back past not only the short-term moving average, but also the long-term, 200-day moving average.

Right now, stocks in the S&P 500 essentially are trading in moving average purgatory. The question now becomes -- will they once again taste the fire below, or will they ascend to the bullish ether?

My suspicions tell me that we’ll break back above the 200-day average before we fall back below the 50-day average. I base those suspicions on recent trading activity, as well as the sense I get that despite the rash of fears populating the market landscape, people actually want to be bullish.

I think that the smart money will continue adding to equities as we finish out the summer, but of course, I cannot be certain of that. What I can be certain of is the absolute requirement of having a strict sell discipline in case this market takes another big downturn the way it did in June. Having stop-loss orders on all of your invested positions will ensure that you don’t get burned if the next move out of purgatory is, in fact, into the fire below.

If you’d like to find out how and, more importantly where, to put stop-loss orders on your invested positions, then check out my Successful Investing advisory service.