Watch the 200-day moving average for the S&P 500 for market direction

The S&P 500’s 200-day moving average is at approximately 1,910.  With the index currently trading around 1,940, and having pushed up through the 200-day MA right off the open yesterday, we are at an inflection point for the market.  Should the S&P 500 fail to hold above the 200-day (above ,1920), the downtrend will be confirmed and reinforced, and we should expect further downside well beyond the 1,820 level – the most recent low that represents a 9% retracement from the recent all-time high of 2,019.  If the S&P 500 can stay above 1,920 and build a bottom there, we could see the market attempt to rally back above 2,000 and possibly to new highs.  However, I do not believe this is the most likely outcome.  Given that the stock market has not experienced a 10% or greater correction in the past 3 years, and we are more than 5 1/2 years into this bull market, the most likely outcome is a much more significant correction, probably down to at least 1,740 and possibly as low as 1,650 before we see any real support.  I remain in cash.

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