The decline has carried the market down to its 200-day moving average, which it hasn’t really even been close to since last summer (shown on chart below). In addition, the S&P is also just above its 2011 low of 1,250 reached in mid-March. With stocks close to two important areas of support, and with signs of being oversold in the near-term, we believe that at the very least some sort of bounce should materialize soon.
We’ve been anticipating that 2011 could be a more volatile year, as the bull market passes its second anniversary. We’ve written several times that the most explosive gains are likely behind us, and that it would probably be much more of a grinding uptrend. While lately things seem to be moving in a more negative direction, we’re not yet ready to abandon the idea that the bull market may still have some life left in it. The vigor of a bounce, assuming one occurs soon, should provide some valuable clues as to whether the bull still has legs or if a more definitive market top may be forming.
Chart: S&P 500 Index w/ 200-day moving average
