Hammered by weak economic data in Asia, South American turmoil and a stream of weak earnings reports from blue chips like IBM (IBM) and McDonalds (MCD), the S&P 500 (^GSPC) is down sharply for the weak and off more than 1% in 2014. The drop wouldn’t even be worth mentioning if not for the fact that it’s been well over two years since the last stock market correction. With stocks up more than 50% since August of 2011, experienced investors are bracing themselves for a meaningful equity pullback.
There isn’t a financial pundit or business section on earth that hasn’t pointed out that stocks are long overdue for a correction and they’ve all been wrong so far. According to Scott Nations of NationsShares, what makes buying this dip a bad idea is the nature of the market headwinds. In the attached video Nations says the key difference is that the problems are coming from overseas. “The Fed doesn’t have any control over what’s going on in Argentina or Mexico or Indonesia or more importantly China. That’s why this time is different.”
Nations is watching technical support levels for confirmation that we’re on the cusp of a market drop. Specifically he sees the S&P500’s 50 day moving average of 1,811 and the psychologically important 1,800 mark as areas that need to hold to keep professional traders from bailing out of their long positions.
Should the S&P500 end the week below 1,800 Nations says it’s time to take profits and either look for opportunities in specific stocks or simply park cash on the sideline and wait for some good old fashioned fear to manifest itself in the form of a drop of 10% or more.