Remember when the S&P 500 broke below its 200 moving average for the first time in something like 2 years, breaking its stellar track record? Not anymore! This morning the SPX gaped back above the 200ma and, as of this writing, is trending higher intraday. I'm sure today's move has caught many people by surprise (including myself) given the large pullback we saw weeks earlier. I noted recently that I didn't believe the risk/reward favored the long side but that I would continue to take setups on an individual basis, i.e., the stock's own merits.
I think many people strongly believed that last week's break of the 200ma signaled a further pullback in the market to come (e.g., 20-30% pullback). Again, while I thought the risk/reward didn't favor the long side at the time, I wasn't in the camp that the market had to see a further correction merely because the SPX's long-running streak above its 200ma had come to an end.
In fact, it's extremely common for the SPX to test its 200 moving average some time during the year, and the market certainly hasn't been down every year it has done so. Going back to 1970, there have only been 3 years where the SPX didn't test its 200ma intrayear: 1989, 1993, & 2013. (Thanks to @RyanDetrick for helping me out with this test). Clearly, testing the 200ma isn't such a rarity.
So remember, just because a trend ends doesn't mean we have to see a full on crash. Personally, I think we base a bit and end up rallying to new highs by year-end. But that's just speculation at this point. I'll take things as they come.
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