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As Stocks Race To Record Highs A Stealth Bear Market Roars

By Michael KramerStock MarketsMay 07, 2021 06:24AM ET
www.investing.com/analysis/as-stocks-race-to-record-highs-a-stealth-bear-market-roars-200578336
As Stocks Race To Record Highs A Stealth Bear Market Roars
By Michael Kramer   |  May 07, 2021 06:24AM ET
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This article was written exclusively for Investing.com

While the S&P 500 appears to be making new highs regularly, something is churning beneath the surface. Many stocks and sectors within the broader equity market are in a correction or a full-blown bear market. Even Amazon (NASDAQ:AMZN), which just reported a stellar first quarter, can’t seem to find a bid these days, with the shares down approximately 10% from its after-hours peak on Apr. 29.  

Meanwhile, a handful of sectors have fallen by more than 20%, like the SPDR® S&P Biotech ETF (NYSE:XBI), which has fallen almost 30%. Additionally, the Invesco Solar ETF (NYSE:TAN) has dropped by roughly 40%. Even the high-flying ARK Innovation ETF (NYSE:ARKK) has fallen more than 30%.  

The Carnage

The carnage has been spread across the market, with high-flying stocks, like Roku (NASDAQ:ROKU), Twilio (NYSE:TWLO), and Zoom Video (NASDAQ:ZM) plunging. Given there still elevated valuation, it doesn’t seem as if they are likely to recover anytime soon. For example, Zoom, despite falling by around 50%, still trades at 60 times 2024 earnings estimates of $4.98 per share. While Roku trades at 132 times 2023 earnings estimates of $2.58 per share. 

It is more than just the few names that are listed above. There is a notable breakdown that is occurring within the percentage of stocks in the equity market above their 50 day-moving average drifting lower since the middle of February. Currently, it stands at just 50%, down from around 85%. 

MMFI Daily
MMFI Daily

Divergences

More startling is the difference between the percentage of stocks in the market above their 50-day moving average versus the same percentage in the S&P 500. Currently, the difference is around 27%, the widest that difference has been going back to 2007. 

SSFI Daily
SSFI Daily

It is worth noting that this divergence doesn’t stop there. When the percentage of stocks above their 50-day moving average is trending lower as the S&P 500 rises, the market tends to eventually follow the trend of the stocks above their 50-day moving average. 

%age Of Stocks Above 50DMA
%age Of Stocks Above 50DMA

It seems to suggest that while all seems fine on the surface, beneath the surface, given the size of some of the declines, something more sinister is going on. Perhaps, even a stealth bear market that has yet to reach the surface of the larger cap S&P 500 components. 

Pain to Come?

Whether the larger, by market cap, S&P 500 is ready to correct is open to debate. Indeed, one could argue, something strange is going on. Even some of the biggest companies outside of Amazon have reported stellar earnings and plunged. Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) are other examples of a few stock struggling to rally, despite strong results. It could be that the market is telling us that the road is getting tough for these companies going forward and that the easy gains are gone. 

Whatever may be going on beneath the surface, there is a lot of carnage taking place. Many sectors and stocks have been getting hammered, while the big indices keep racing to higher and higher levels. Is it a warning sign of pain to come to the S&P 500 in the near term? Or is there just a stealth bear market taking place as sector rotations play out? Only time will tell. 

As Stocks Race To Record Highs A Stealth Bear Market Roars
 

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As Stocks Race To Record Highs A Stealth Bear Market Roars

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Comments (22)
Tokyo Tiger
Tokyo Tiger May 11, 2021 2:22PM ET
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Thanks Cramer
Haris Asd
Haris Asd May 08, 2021 10:47AM ET
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Well, I understand that a pleasant illusion is better than a harsh reality, so with all that enormous uncle sam's stimulus money, expecting a bear market is not psychologically healthy.
Gershom Zvi
Gershom Zvi May 07, 2021 5:27PM ET
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Only dogecoin is making money but stockmarket is down sll the way
John Smith
John Smith May 07, 2021 2:51PM ET
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The forthcoming market destruction as warned of in this article will be the finalization of the greatest transfer of wealth in global history initiated by the less than 1% fatality rated coronavirus.  Now that small business owners have been annihilated; the rug pull on the "inflated" equities and "unregulated" cryptocurrency markets will be the coup de grace on personal wealth and pensions for all but the luckiest and/or wealthiest individuals.  Standing alone amidst the destruction will be the central banks who have been slowly unwinding their massive short gold positions and accumulating gold since August 2020 all the way to the double bottom on 3/30/21.  Last but not least those crazy old antique relics; the Gold and Silver bugs, who are few and far between, will finally have their day in the Sun.
Kevin Rodricks
Kevin Rodricks May 07, 2021 1:43PM ET
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Investors are withdrawing their substantial gains from the year and putting it into something that's even more profitable...crypto.
Aaron Dade
Aaron Dade May 07, 2021 1:35PM ET
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Agreed....just believe the pricing of state stimulus is next...they got it and now how will they spend it. However, a bear market seems logical because of a necessary correction based of inflated valuation which is dangerous. wish stock valuation worked on consumer credit....your 650 score is 800 lol.
Jim Hermann
Jim Hermann May 07, 2021 1:16PM ET
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I like the sector rotation theory better. Too many very solid or record earnings.
Andrew Bevan
Andrew Bevan May 07, 2021 1:15PM ET
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Oh, this is clever! Investors running for security in the final move. You could be right! 👍
apostolos sideris
apostolos sideris May 07, 2021 1:11PM ET
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very good !!!
David Laquerre
David Laquerre May 07, 2021 1:11PM ET
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Theres a huge short seller push occuring in certain sectors. This could also explain why many are under their 50MA while indices rise
Zoltan Beck
Zoltan Beck May 07, 2021 1:07PM ET
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He is kind of right. It is so strange that indices are going higher and higher but many stocks after fantastic earning results plunged
vipul makani
vipul makani May 07, 2021 1:05PM ET
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Dow 50k next year 40K this year
roar hopsdal
roar hopsdal May 07, 2021 1:03PM ET
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i have nothing to do with this. Im Bull
Mark Brovchuk
Mark Brovchuk May 07, 2021 12:26PM ET
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0 volatility its 7pm, what on earth is going on?
Steve Lora
Steve Lora May 07, 2021 12:18PM ET
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Fear doest sell here. I bet this writer shares a studio apartment in the bronx
Bob Raborn
Bob Raborn May 07, 2021 9:43AM ET
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This guy is usually somewhat negative.......more of a contrarian........but his vision has more truth in it today. But ....nonetheless.....shhhh........the market doesn't like reality.
ECL SALES
ECL SALES May 07, 2021 8:07AM ET
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It may also mean we are ready to take off again. Since until there is any hint that FED would stop supporting markets, markets would be going guns. Smart money would take it higher so that FOMO would enter and they would get out. Pump & Dump
Bob Raborn
Bob Raborn May 07, 2021 8:07AM ET
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oh.....we will progress......just not as fast as the "experts" are proclaiming........the pandemic is NOT through with us yet
Gershom Zvi
Gershom Zvi May 07, 2021 8:01AM ET
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Capital losses only no tax for Feds
rohit singh
rohit singh May 07, 2021 7:59AM ET
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Inetesting analysis. what i have learnt is to buy industry leaders and remain invested for 10-20 years and in the end it works out ok.
Gershom Zvi
Gershom Zvi May 07, 2021 7:58AM ET
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Everything fallen more than 30% 40% 50% Biden’s stockmarket Bad manegment Shame on him !!!Defenetly we miss Trump’s market
Bob Raborn
Bob Raborn May 07, 2021 7:58AM ET
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oh......you like lying crooks do you ?
Super Sonic
Super Sonic May 07, 2021 7:58AM ET
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the market did better in biden's first 100 days than any president in history
Gershom Zvi
Gershom Zvi May 07, 2021 7:58AM ET
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Super Sonic 50 days Dude
Stephen Short
Stephen Short May 07, 2021 7:58AM ET
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If true, it is a coincidence 🤔
Rodolfo Barraco
Rodolfo Barraco May 07, 2021 7:49AM ET
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Very good analysis
Hichem Trabelsi
Hichem May 07, 2021 6:30AM ET
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Interesting analysis, thank you !
 
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