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Bears Firmly In Control

By Craig ThompsonStock MarketsJul 04, 2022 02:13PM ET
www.investing.com/analysis/bears-firmly-in-control-200626651
Bears Firmly In Control
By Craig Thompson   |  Jul 04, 2022 02:13PM ET
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Below is a daily chart of the S&P 500 Index. Here are the critical aspects of the chart:

  • The index is in a downtrend defined by a series of lower highs and lower lows.
  • Price advances keep failing at resistance.
  • Price is below its 50- and 200-day moving averages, and both those averages are trending down.

Based upon the above-noted chart characteristics the market still looks bearish.

In summary, price action is still bearish.

S&P 500 Chart.
S&P 500 Chart.

Technical Market Summary

Market technicals started to become bearish in Q1 – Q2 of last year. Since then, market technicals have continued to deteriorate and major market indexes rolled over at the beginning of this year.

Below I summarize the different technical categories that have helped us to anticipate the market downturn and how they look currently.


Market Breadth – Bearish

In our November 2021 and October 2021 updates, I wrote about the negative divergence that was occurring in the Summation Index (a breadth indicator).

In our December 2021 update, I explained how mid-, small- and micro-cap indexes were consolidating as the S&P 500 was advancing.

Market Breadth continues to display weakness. The Summation Index (not charted) is currently below zero which is bearish.

Market Momentum – Bearish

In our March 8, 2022 update, Are We In The Early Stages of a Bear Market, I presented a monthly chart of the S&P 500 showing the MACD (a momentum indicator) had turned decisively down.

Short-term momentum indicators turned up last month which coincided with the June bounce. That bounce has stalled at major resistance and the MACD is starting to show signs of rolling over.

Long-term momentum is negative and short-term momentum is showing signs of rolling over.

Risk-Off – Bearish

The stock market has been in a decidedly risk-off environment since the beginning of the year which is indicative of a bear market environment.

April 11, 2022 Market Update – Risk-on or Risk-off.

Currently, risk-on sectors/industry groups such as Semiconductor, Technology, Discretionary, and Communication stocks are underperforming. While risk-off sectors such as Healthcare, Consumer Staples, and Utilities are outperforming.

The market is still in a risk-off environment.

Market Sentiment – Bearish

Market sentiment has not gotten close to levels that would suggest a major market bottom.

June 16, 2022 Update, Capitulation Common at Market Bottoms.

In this update, I write about how investor capitulation is common at major market bottoms and this sentiment can be charted using the VIX.

Currently, the VIX is still nowhere near the elevated levels that would suggest a major market bottom.

Macro-Economic Considerations

The odds the economy is either in recession or will be entering a recession in the near future is substantially elevated. Historically, equities have fallen about 35% during past recessionary market corrections. Given the S&P 500 has dropped only 23% suggests that equities have further to fall.

Bears Firmly In Control
 

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Bears Firmly In Control

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Comments (2)
jeff dar
jeff dar Jul 04, 2022 7:39PM ET
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Excellent analysis, thank you. Would love to know your thoughts on Nasdaq 100.
jeff dar
jeff dar Jul 04, 2022 7:39PM ET
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Excellent analysis, thank you. Would love to know your thoughts on Nasdaq 100.
 
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