The rapid drop put the index into a unique situation which offered few parallels. At Monday's close, the S&P was 13% below its 200-day MA and 20-day MA, and 14% below its 50-day MA. At no time since 1952 has this scenario repeated.
The closest match we get is December 1973. Here the S&P was 13% below its 200-day MA, 11% below its 50-day MA and 5% below its 20-day MA.
Despite making a brief recovery above its 20-day and 50-day MAs in the first quarter of 1974, the outcome was ultimately bearish as sellers again struck in the second half of 1974 to knock a further quarter off the market.
The good news for bulls is we have only a single data point to work with, so there is nothing concrete to suggest the same will happen again. However, it's a warning not to fight the trend, particulary when there is a decisive break of the 200-day MA as is the case now. Use Zignals Stock Alerts to keep you informed as to when your favorite markets and stocks cross above their respective 200-day MAs.
If you haven't taken a holiday from trading, now may be the time to do so.
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