What Will Happen If The Stock Market Breaks Down From Here? – Mike Swanson (04/09/2018)

I know that the stock market is poised to gap up on the open and the masses want buys and predictions of a big rally right now, but to really succeed in the markets you must plan for all outcomes.  You can’t just say to yourself that the stock market is going to go up forever and so you don’t have to think.

That is really what the smart money wants you to do!

The reality is that we have seen some wild swings in the stock market this year with buys off of support, but now the stock market is in a position to break down for the first time in several years.  What will happen if it does?

First take a look at this technical analysis chart of the S&P 500 so you can see what I am talking about.

As you can see after peaking out in January the S&P 500 dumped and then bounced off of it’s 200-day moving average, which is the green line in the chart.

That’s a technical indicator that tends to act as support during bull markets and has done so for years so trading robots came in to buy off of it and so did individual traders.

Then the market rallied (and the Nasdaq actually made a new high with a power move), but then stalled out in March and dumped back down.

To start the month of April on the 2nd the market hit this moving average and again the robots and traders came in to buy.

But that resulted in what amounted to a very weak rally that fell apart this past Friday and now it looks like the market is going to head back down to the 200-day moving average once again.

Maybe the robots can buy again, but when you see a market or a stock for that matter hit a support level two times like this so quickly and barely rally the last time it’s a bad sign.

I’m expecting to see the stock market breakdown this month.  It could happen this week or next week.  That just depends on how much buying robots can do now.  One problem is that we are in the quiet period for companies before they report earnings in a few weeks and during that time corporations are restricted from doing stock buybacks.  So that big buying isn’t there at the moment.

The fact of the matter is that we have seen a big increase in stock market volatility this year that is likely to only increase.  A lot of focus in the financial media is on Trump tariffs right now, but the US dollar has been in a bear market for almost sixteen months now as the biggest bubble in human history is slowly starting to unwind and that’s the global bond market.

But that doesn’t mean that the stock market is just going to crash to nothing overnight if it breaks down from here.

You don’t need to be overly scared right now so much that you can no longer think straight.

Now you shouldn’t be complacent about this situation either.

What we need to do is think clearly about things.

If the stock market breaks support it is likely to fall again much like it did at the start of February.  The drop would eventually end and you’d see another rally.  It would probably end up being a 5-12% drop from current levels, but that would not mean the world is coming to end.

Yes I know some people will get scared, but there will be things worth buying when the masses panic.

Now I’m not interested in buying the past fads, because many of those stocks are no longer acting right.  Facebook is just the most prominent example as it is broken down already and is now a laggard stock already trading below it’s 200-day moving average.

There are many fad stocks that are trading like Facebook now.

I fully expect we’ll see totally brand new leadership emerge when the stock market breaks down as money shifts into new safety trades.  The biggest candidate for a money shift is gold as it has actually been trading opposite to the stock market since the DOW’s January peak.

I talked about the current stock market environment and the gold price chart in an interview I did last week.

Now not everyone is interested in gold right now and the big swings in the markets do bring opportunities to trade many things, but what this year has shown is that trading now requires a strategy of not just buying, but selling too.

This is not the stock market of last year.

When the 200-day moving average no longer works as solid support then you can no longer just make a trade and make money without having a plan of when you will sell.

That is the big lesson you should take from the March failed rally.

And many stocks are already below their 200-day moving averages.

I just put out a new video that includes my top selling strategy for trading.  You can grab it by clicking here.

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