If you were looking for a reason to be cautious about the financial markets, then last weekâ??s action in stocks offered you one giant yellow light. The selling in domestic stocks nearly across the board pushed the major U.S. averages below their 50-day moving averages last week, a first salvo in what could well be a wider sell-off.
Now, the breaking of the 50-day average does not mean that this current bull market is over, or that U.S. stocks now are headed into a downward spiral. The price action on Monday certainly was a positive for the bulls; however, what I do think is important is to view last weekâ??s big selling as an early warning for the markets at large.
Take a look at the charts here of the price action during the past 12 months (through 4/14). As you can see, stocks in the SPDR S&P 500 (SPY) recently fell below the 50-day average, as did stocks in the PowerShares QQQ Trust (QQQ).
I do think the breakdown in the domestic equities last week does require you to take a look at how much equity exposure and risk you have in your portfolio.
Read more about what last week’s big sell-off means for the future direction of the market at Eagle Daily Investor.