A Big Warning Sign Is Flashing

Some of you may be familiar with the 200-day moving average ("DMA"). This indicator is considered a rough gauge of the market's long-term trend.

During bull markets, stocks tend to spend most of their time above the 200-DMA. During bear markets, they spend most of their time below it. And perhaps most important, stocks rarely stray too far from this line in either direction before returning to it.

The following chart of the S&P 500 Index shows how it works. As you can see, since stocks moved back above this trendline following the financial crisis in 2009, they have rarely traded below it...

You'll also notice that whenever stocks have rallied significantly above this line, they have eventually come back to "test" it – touching it or even moving below it briefly – before continuing higher.

Which brings us to today...

Right now, the S&P is nearly 12% above the 200-DMA. And it hasn't "tested" it in more than a year.

This is unusual... In fact, the market has only been this stretched above the 200-DMA three other times since the rally began. And each of those cases preceded a sharp correction over the next few months.

As always, we never recommend making investment decisions based on indicators alone. And like the RSI extreme we mentioned earlier, this is not a precise market-timing tool. Today's extreme could become even more extreme in the near term.

But history is clear: It's simply a matter of time before the market returns to its 200-DMA. And like a rubber band, the further it stretches, the sharper that move is likely to be.

Again, none of these warning signs are a reason to panic...

As we've discussed, several other indicators continue to give the "green light" today. This suggests the next correction is likely to be another buying opportunity rather than the start of a true bear market.

But even if  a serious crisis is approaching, selling your stocks now could be a terrible mistake...

Now... I've done my best to show you the macro framework as I see it... I hope you understand why it's particularly important this year. But honestly, it really shouldn't matter all that much to your investment strategy.

Why not? Because you can't know if I will be right and a bear market will develop soon. And even if I'm 100% right, you could still easily make your biggest gains of this cycle in the final few months of the bull market.

In other words, even if there is a bear market and even if the markets as a whole end up down for the year, you could still make a lot of money by simply following your trailing stop losses and hanging on as long as you can.

So while I think you should be aware of these macro risks... and while I believe they're even more important this year than they have been in more than a decade... I think it's far more important that you simply follow sound investing principles, rather than try to time the market.