Is the Rally Over?

Back in March, at the very beginning of what became a huge run higher for stocks, I was skeptical that the market could mount a sustainable rally. As the months went by, I remained skeptical; however, the market proved that it could indeed make a protracted move higher that lasted for several months.

Now the question becomes, is that rally over? Are we now staring down the barrel of a potentially protracted decline in equities?

If we take a look at the chart below of the S&P 500 Index, we can see that we are now trading below both the 50- (blue line) and 200-day (red line) moving averages.

As regular readers of the Alert likely know, when stocks fall below their key 200-day moving average, it’s a very bearish signal going forward. Now, does this mean the market rally is over, or can stocks make another push higher over the summer months?

I think there’s a solid possibility for a move higher by the fall, but unfortunately, I think there’s also a strong possibility that we move lower from here. Now, if that seems a bit wishy-washy, let me assure you, it really isn’t. It’s merely a realization that we are at a critical juncture here with respect to the future direction of stocks over the short term.

If you’ve invested money in this market over the past few months, then my advice to you is to make sure you have an exit strategy if the recent market pullback turns vicious. You don’t want to be caught holding on to losses after the big run we’ve seen in stocks over the past four months.

Have your sell disciplines in place, and don’t be afraid to embrace cash when the going gets tough. Remember that you care about your money more than anyone else ever will, and that means you are responsible for making sure you shepherd your portfolio safely through hazardous market fields.