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As Stocks Race To Record Highs A Stealth Bear Market Roars

Published 05/07/2021, 06:24 AM
Updated 09/20/2023, 06:34 AM

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

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

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

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. 

Latest comments

Thanks Cramer
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.
Only dogecoin is making money but stockmarket is down sll the way
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.
Investors are withdrawing their substantial gains from the year and putting it into something that's even more profitable...crypto.
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.
I like the sector rotation theory better. Too many very solid or record earnings.
Oh, this is clever! Investors running for security in the final move. You could be right! 👍
very good !!!
Theres a huge short seller push occuring in certain sectors. This could also explain why many are under their 50MA while indices rise
He is kind of right. It is so strange that indices are going higher and higher but many stocks after fantastic earning results plunged
Dow 50k next year 40K this year
i have nothing to do with this. Im Bull
0 volatility its 7pm, what on earth is going on?
Fear doest sell here. I bet this writer shares a studio apartment in the bronx
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.
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
oh.....we will progress......just not as fast as the "experts" are proclaiming........the pandemic is NOT through with us yet
Capital losses only no tax for Feds
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.
Everything fallen more than 30% 40% 50% Biden’s stockmarket Bad manegment Shame on him !!!Defenetly we miss Trump’s market
the market did better in biden's first 100 days than any president in history
50 days Dude
If true, it is a coincidence 🤔
Very good analysis
Interesting analysis, thank you !
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