After an eight-week correction, the stock market is showing signs of a potential comeback.
As you can see on the chart below, the S&P 500 is finding clear support at the 200-day moving average line (click on chart to enlarge):
Corrections often pull back to this 200-day line before settling into a sideways market or reversing higher and starting a new Uptrend.
Thus, the key question right now is whether this is a brief pause in the Downtrend, the beginning of a new Uptrend, or a new sideways phase for the market.
For now, we’re seeing clear signs of support and our Market Health Report has shifted from a Downtrend to a Neutral Trend.
However, you want to keep an eye on the S&P 500’s 200-day moving average line. If the market turns south and slashes through that line, it’s a good indicator that a Downtrend has resumed.
In a Neutral Trend environment like the one we’re currently in, you want to focus on buying only the very best stocks in terms of fundamentals and technical action. For breakouts to be valid, they need to come out of proven bases and on HEAVY volume. Now is not the time to get tempted by sub-par stocks and less-than-ideal breakouts.
And, when you do buy into new stocks, ease into positions. Consider smaller positions than you normally would in a strong Uptrend.