In addition to ruffling many bullish feathers of late, yesterday’s big decline also gave the bears an advantage on the charts as the S&P 500 sliced through its 50-day moving average for the first time in over a month. This suggests that the bulls will have a hard time regaining control of the market, at least in the short run. Let’s dig a little deeper into this.
50 Day Blues
The 50-day moving average is one of the most important technical indicators that traders look at. When it is crossed in either direction, many traders and investors with billions to play with take notice and it sometimes becomes a self-fulfilling prophecy. Yesterday’s downward surge undercut the moving average, which currently stands around 1325 on the S&P 500.
It’s interesting to note that we are only about 3% off of the recent highs, but it feels much worse than that. I have spoken before about how the major indices can mask the action that occurs under the surface and I think we are in one of those times right now. A lot of momentum names, especially in the commodity space have gotten crushed and this could soon spill over into the broader indices.
It’s important to note that many previous technical warnings over the past two years have been totally brushed off by the bulls and higher highs were achieved with little trouble. The best way to play it is to adopt a wait and see attitude rather than trying to be a hero and nail the exact bottom. That is a fool’s game that will cost you money. I think it’s better to be a bit late than to be holding the bag as you get steamrolled by everybody’s selling.
I don’t think it’s time to panic by any means, but the 50-day undercut is something to keep an eye on. When prices are falling, negative news that was previously ignored tends to become the main focus of investors. That’s why the European debt problems have been in the news recently. Thbe best thing to do is let the selling play out and wait for some strength before jumping back in or buying more.
Bears Wrestle Technical Control Away From Bulls is an article from: 
