Making Money Alert
Lost at the 50-Day Average
11/22/2011
If there still were any doubts that the trend in the market now has turned decidedly negative, then Monday’s big sell-off effectively should have erased those misgivings. The huge drop in stocks to kick off this holiday-shortened week sent the S&P 500 Index below its short-term, 50-day moving average, the one key technical measure that it had been holding onto since the rally began in October.
As you can see by the chart here of the S&P 500, the broad measure of the domestic market now is trading below both the long-term, 200-day moving average, as well as the short-term, 50-day moving average. This chart is a clear indication that the uptrend we witnessed in October is basically over, and that a new bearish posture has taken hold of Wall Street.
During the past five weeks, we’ve provided you with some tools to help you survive the next bear market. If what we’ve seen during the past two weeks actually does morph into a full-fledged bear, you’ll want to become intimately familiar with what I call the Bear Market Survival Guide.
Remember that the first step in surviving a market downturn is to know when you’re in, or getting close to, a bear market. Now that we’ve seen the market break below support at the 50-day moving average, it’s the first big technical sign that you should start getting your money protected from what could be a potentially pernicious downturn.
During the course of our Bear Market Survival Guide, we showed you how to use bear market equity funds designed to move higher when stocks are in decline. We also covered other safe havens used by investors when stocks are in decline, such as currency funds and bond funds. If you aren’t yet familiar with these funds, then I strongly recommend that you go back and check out the past several weeks of this publication.
Now that the market has proven that the October uptrend is over, it’s essential that you prepare for the worst. If things turn around from here, you always can jump into equities. But if the current selling gets ugly, you’ll want to know how to turn the tide in your favor.