Like Richard Russell, Jeff Saut of Raymond James is keenly focused on the technical aspects of the current market environment. Saut says this is a decisive week as any break of the 50 day moving average could result in further declines:
“Two weeks ago I said, “While the intermediate/long-term internal stock market energy remains fully charged for a move higher, the market’s short-term energy still needs some time to rebuild. This probably means another week, or two, of consolidation and/or attempts to sell stocks down before we begin another leg to the upside. Even so, I don’t think any selling will gain much downside traction, implying the zone between the S&P 500’s 50-day moving average (DMA) at 1320 and the 1340 level should provide support for stocks.” Well, it’s now two weeks later and from my lips to God’s ears because the S&P 500 (SPX/1333.27) did exactly that last week when it tested its 50-DMA and proceeded to bounce above 1340, which I thought would confirm the successful test of the 1320 level. Alas, that wasn’t meant to be as once again Friday’s Fade (-10.33 SPX) left the SPX right in the middle of my 1320 – 1340 support zone. Still, the action has not negated the “call” for a move above 1400 by the end of June provided the SPX doesn’t decisively violate the 50-DMA to the downside.”
As I type, the S&P is about 8 points below its 50 day moving average. If Mr. Saut’s thesis plays out we could see a bit of a bounce at these levels, however, if the decline this week persists then it could be time to look out below.