I don't want to try predict what will happen.  I'd rather react to what is happening, but so far what we see is a pullback to the 50-day EMA so we are at an important juncture on the S&P 500. 

It's time for the S&P 500 to put its money where my mouth is.  Yesterday we compared the recent action to the triangle formation back in November.  We mentioned that many times these triangles, or apexes, fake us out by breaking one way, then reversing and breaking out in the opposite direction.  
                       

I sure hope the market makes me look smart and yesterday's breakdown turns into a breakout in the coming day. 

If not, then we have to be prepared to take a much more defensive stance on the market.  When the rising trend breaks, along with the 20 and 50-day EMA's, that is enough warning to look to get out.  If not immediately, by selling rallies.  But we are not quite there yet.

In 2005-2007 we saw strong rallies pull back to these exponential moving averages (EMA's), and hold.  That means if the 50-day EMA breaks, we should probably prepare for a move down to the 200-day EMA.  But there is a decent chance that this pullback will find support in the current 1295 area.
                        
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

What do the pros think?  I rarely do this but I am copying an excerpt from RevShark's Afternoon Commentary here so you can hear what a professional trader / hedge fund manager thinks during days like yesterday. 

These Afternoon Commentary are written with general market analysis, and are not related to the TSP...

RevShark's Afternoon Commentary from March 10.

"Quite a few market players were worried that this market was going to correct some more, but most thought that the catalyst would be higher crude oil prices. We did correct, but oil was down nearly 2%. Market players found a quite a few other reasons to intensify their selling. China announced some surprise weakness, Spanish was downgraded and there were reports of some unrest in Saudi Arabia.

"The weak economic news from China was probably responsible for some of the oil of the weakness, but this was a market that has been signaling caution for a couple weeks now. We have had a series of technical distribution days, especially in the Nasdaq, as well as a number of failed bounces. We had been holding within a trading range but were unable to hold recent lows today.

"All the major indices, except for the DJIA, are now under their 50 day simple moving average. For many technicians that is an automatic sign for caution. This is the first time we have been below that level since the beginning of September. The last time the S&P500 broke its 50 day support was in April 2010. We corrected almost 14% after that before finally bottoming in July.

"There is just one very basic thing we need to keep in mind right now: we are starting to downtrend. We have had a series of lower highs and lower lows and have breached a number of support levels. Overall volume has been higher on down days lately, which is an indication of institutional selling.

"The good news is that we have needed a correction in order for a new crop of opportunities to develop. I always start becoming more optimistic when we have this sort of action because I know some great  long trades (buying opportunities) are going to eventually emerge..."

- RevShark

Surprisingly, oil fell yesterday.  Here we thought that the stock market was playing the "fade the oil" dance, but oil fell sharply yesterday during the stock market sell-off. 

         

This is a little concerning as it seems to have been a series of negative economic that triggered the sell-off, rather than oil.

The TSP Talk Sentiment Survey gave another buy signal this week after the 0.59 to 1 bulls (33%) to bears (56%) ratio. The system's allocation remains 100% S-Fund for next week.

Update 1:33 AM ET:  The Dow futures just swung from being up 30, to down 70-points after a major earthquake hit Japan.  What else can go wrong? 

Thanks for reading!  Have a great weekend!

Tom Crowley