If you still harbor doubt that the correction in the equity markets now is underway, then all you have to do is check out a price chart of the Dow Jones Industrial Average. Monday’s steep 300-plus point drop in the Dow sent the most widely watched measure of the equity market plunging below its long-term support at the 200-day moving average.
The decline in the Dow marks the first time in more than a year that the Industrials have broken their long-term uptrend, and that situation is a very bearish sign for stocks going forward. The only saving grace here for the markets is that the Dow so far is the only major market metric that has fallen beneath its 200-day average.
The S&P 500 Index continues to trade above its 200-day average, while the NASDAQ Composite also continues trading above its long-term support levels. I think that if we were to fall below the 200-day average, particularly in the broad-based S&P 500, that drop would be the biggest negative signal from the markets for a very long time.
Read more about what the Dow’s drop means for you and your investments at Eagle Daily Investor.