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The bulls may have felt vindicated when the S&P 500 regained its 200 dma late last week. This episode is a lesson for investors to regard similar circumstances as a buying opportunity. But that’s not the entire story as the market is becoming increasingly bifurcated.
This chart shows the S&P 500, NASDAQ 100, Dow Jones Industrials Average, the mid-cap S&P 400 and the small-cap Russell 2000 with their respective moving averages. The good news is the S&P 500 and the Dow regained their 200 dma. While the S&P 500 moving average has been rising, the same isn’t true for the Dow. The NASDAQ 100 is holding above its 200 dma. The bad news is the S&P 400 and the Russell 2000 are below falling moving averages. The strength of the S&P 500 has been held up by megcap growth stocks. In the absence of the effects of megcap growth, the other major U.S. equity averages are signaling bear markets.
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How you position yourself in light of this bifurcation in market internals depends on your time horizon and whether you are a momentum or value investor.
The full post can be found here.