The Chart Pattern That Scares Billionaires  | | Robert Ross
Speculative Assets Specialist | I have a handful of legendary investors I keep tabs on. There are obvious ones like Warren Buffett and Stan Druckenmiller. I track their portfolio moves through 13-F filings to see what they're up to. I also watch old interviews to understand their thought process. Another investor I follow closely is Paul Tudor Jones. He is one of the greatest traders of all time. I hang on his every word. He became famous for predicting the Black Monday Crash in 1987 and generating triple-digit returns. Meanwhile, everyone else was losing their shirts. With markets now teetering due to Trump "Volcker-ing" the economy into a downturn, it's time to revisit one of his most valuable lessons about a key indicator I watch. Because it's currently flashing red. Why the 200-Day Moving Average Matters So Much One of Paul Tudor Jones' most famous lines is: "Nothing good happens below the 200-day moving average." That might sound like just another piece of technical jargon at first. Yet, it's one of the simplest and most powerful ways to track the market's health. And it's especially relevant right now. So, what is the 200-day moving average? It's exactly what it sounds like: a rolling average of a stock or index's closing price over the last 200 trading days. The 200-day moving average smooths out the daily noise and shows the long-term trend. If prices are trading above the 200-day moving average, that's a sign of strength. If they're trading below it, it signals weakness. Think of it like this: If an asset is above its 200-day MA, the long-term trend is up. Bulls are in control. But once it breaks below, that trend reverses - and the risk of deeper declines increases dramatically. That's why Jones, and many other pros, watch it so closely. Right now, the 200-day MA is sending a warning sign. The Odds Are Not in Our Favor... For Now Over the past 100 years, the 200-day MA has acted as a "line in the sand" for markets. When prices fall below it, institutional money often pulls back. Algorithms programmed to respect long-term trends start selling. Nervous investors who just entered the market tend to panic and sell. The 200-day moving average is more than just a line on a chart. It reflects a psychological shift in the market. Above it, confidence tends to build. Below it, fear starts to spread. Right now, the S&P 500 and the Nasdaq Composite, the two most important market indexes on the planet, are trading below their 200-day moving averages. In the last decade, the S&P 500 has fallen below the 200-day MA seven times for longer than two weeks. The index fell double digits in the next three months except for a brief period in October 2023: 
View larger image It's a similar story for the tech-heavy Nasdaq. It saw double-digit corrections in the next three months, each of the six times it fell below the 200-day MA in the last decade: 
View larger image As I explained in last week's newsletter, I don't think this time is different. That means you need to be extra cautious over the next few months. Short-Term Bearish, Medium-Term Bullish Tudor Jones doesn't try to be a hero when prices are below the 200-day moving average. He waits for strength to return before increasing risk. And while most major U.S. indexes, including the S&P 500 and Nasdaq, are trading below their 200-day moving averages... That's not a guarantee the market will crash. But it does create a higher-risk environment where trends are weak, sentiment is fragile, and downside volatility tends to accelerate. However, I want to be clear: I have not turned bearish on the next 12 to 24 months. In fact, I remain bullish over that time frame. We could be setting up for a powerful rally fueled by lower rates, renewed confidence, and capital rotation... That is... if Trump and Bessent succeed in engineering a slowdown to drop yields and inflation. Nonetheless, we need to be careful. That's why I've been more selective with new positions and holding more cash than usual. We'll be ready to take advantage when the trend turns back up. Stay safe out there, Robert Want more content like this? | | | | | | 
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