The anxiety, frustration and second-guessing builds during times like these, but you must remain vigilant and, more important, patient.
Since the market peaked at the end of January and subsequently slid into its first correction in two years, we've been patiently waiting to see whether this is "just" a correction or if it's the start of the next bear market.
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But as the market consolidates before its next move, the anticipation can be almost too much for many investors. In times like these, mistakes are made and money is lost. Investing strategies and discipline get tossed out the window as traders base their next move on the daily swings of the market. Euphoria climbs when the S&P 500 ends the day in green, but it quickly fades the next day when the market opens lower.
Don't get caught in this vicious cycle.
By following the MP Score system, my subscribers and I have a strategy, a system, and clear buy and sell signals in place. Are we going to take some losses along the way? Yes, but as long as we keep them small we'll be fine.
Moving forward, we will continue to monitor two key technicals that I talked about last week, as these should give us a clue about what this market might do next.
The first is the 2,800-point barrier on the S&P 500 (it closed today at 2,734). That's currently our line of resistance. If the market breaks through that, then it's likely the market will go on to reach new highs.
The second marker we're looking at is the 200-day moving average, which, if breached, could set up a test a test of our double-bottom support line of around 2,580. If the market falls through this level, we could be in for a deeper correction. Keep in mind, a 20% pullback from January highs puts the S&P 500 around the 2,300 mark.
As you can see in the chart below, I've updated the key technical levels we're keeping an eye on, as well as a couple potential pathways that the market could take going into the summer months...
If the market rallies to our line of resistance (the blue dotted line), I imagine it would test resistance, pullback, then retest resistance. If it retests resistance a second time, look for it to break out and rally to the January highs.
However, if the market fails to break through resistance a second time, look for it to fall back to the 200-day moving average and continue drifting lower. This scenario would mean that we would be heading into late September, early October looking down the barrel of a bear market, which corresponds with our business-cycle thesis. (I discussed this a few weeks ago in this article)
As a refresher, I talked about how commodities tend to rally late in the business cycle, right before we enter a recession. I showed you that the last two times we had a similar setup as today, we saw the market peak and commodities rally for an average eight months as the bear market set in.
Leading up to the dot-com bubble, we saw lots of volatility, but commodities rallied nonetheless after the market peaked in March 2000.
Here it is again leading up to the financial crisis... the market peaked in October 2007 and slowly drifted lower as commodities continued to rally.
And here's where we are today...
As I've demonstrated, we are seeing an eerily similar setup as we saw leading up to the dot-com and housing bubbles.
And if you hear someone say, "This time is different," kindly remind them that those four words constitute what is widely regarded as the most dangerous investing phrase in the English language.
By sticking to our rules and sell signals, my MP Score followers and I won't be the ones left holding the bag. After all, eventually, everyone sells, whether it's because they want to or because they have to.
My system is still finding stocks with momentum, but volatility can quickly end a trade. That's okay, as long as we stick to our sell signals.
Not only that, but in keeping with our business cycle thesis, the system flagged another energy play recently, along with a small-cap tech stock that could deliver big-time gains -- but only if we follow the system's buy and sell signals to the letter...
If you're tired of not knowing only what to buy, but when to buy and sell, then you should give the MP Score system a risk-free trial. In the coming weeks and months, it just might be the best investment decision you make all year. We've found gains of 135%, 181%, 242% and more using this system -- but perhaps ever more important, it's steered us away from the market when it hits rough waters. To learn more about the MP Score, check out this report.
This article originally appeared on StreetAuthority.com.