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Why Is Everyone So Consumed With The 50-Day Moving Average?

 October 13, 2011 12:16 PM

Yesterday the S&P 500 traded above the 50-day moving average for the first time since July. Technically it is a good signal for the bulls but not the type of billboard buy signal that some people are making it out to be.

I would use caution here if you are thinking of long positions in the market now – you missed your opportunity last week.I have to admit it's an impressive rally staged by the bulls – one that we all didn't think would be this strong. Just in the last 5 trading sessions, the S&P has surged nearly 8% and the Russell 2000 has climbed more than 13%. But before you get too hyper keep in mind that we are still firmly in a downtrend at this point and bear market type rallies are strong by nature. I would expect this current rally to get sold fairly quickly if it starts to stall.

[Related -Savings Glut and Financial Imbalances]

At the flip of a switch it seems that investors are no longer worried about the Euro-Zone debt problems. This is far from over and will once again rear it's ugly head in the near future. Don't get fooled, stop watching the news and feeding off the top stories. Start exiting long positions and use this opportunity to buy protection for another drop a cheap prices.

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