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Does Market Bounce Signal End Of The Downtrend?

By Craig ThompsonStock MarketsJun 06, 2022 02:39PM ET
www.investing.com/analysis/does-market-bounce-signal-end-of-the-downtrend-200625385
Does Market Bounce Signal End Of The Downtrend?
By Craig Thompson   |  Jun 06, 2022 02:39PM ET
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Easy money policies by the Fed and excessive fiscal spending have placed the economy and, thus, markets in a position of weakness. Inflation is raging and the Fed is trying to reign it in as the economy is showing signs of slowing. The net result is that markets are likely to be more volatile and the risk of prolonged market declines elevated. Passive investment strategies that worked well over the past bull market run are likely to underperform going forward.

Below are daily charts for the S&P 500, Nasdaq 100 and iShares Russell 2000 ETF (NYSE:IWM). The pattern of all three are similar in that they are experiencing a short-term advance within a longer-term downtrend.

The question is, of course, does this bounce signal the end of the downtrend? For those investors hoping the market has bottomed because they are fearful of further losses. Don’t get your hopes up.

Here are my takeaways from the charts:

  • All three are in downtrends, price is below both their 50- and 200-day moving averages, and those averages are trending down.
  • The bounce that began last month has taken all three indexes right up to resistance.

At this point, I don’t see any technical data that suggests this advance is anything other than an oversold bounce. However, if those indexes can advance strongly above resistance and risk-on assets start to outperform, I would have to reevaluate that thesis.

In summary, the market still looks bearish.

SPX Daily Chart.
SPX Daily Chart.

Nasdaq 100 Daily Chart.
Nasdaq 100 Daily Chart.

IWM Daily Chart.
IWM Daily Chart.

Does Market Bounce Signal End Of The Downtrend?
 

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Does Market Bounce Signal End Of The Downtrend?

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Comments (5)
Steve Bojo
Steve Bojo Jun 07, 2022 2:41AM ET
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Nope
Murali Krishna
Murali Krishna Jun 06, 2022 11:40PM ET
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Yes. New high for all stocks soon Hurry up to buy stocks. You may miss the chance
Chris Hall
Chris Hall Jun 06, 2022 9:45PM ET
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market is dead
BD
BD Jun 06, 2022 9:35PM ET
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Even downtrends have 50% retraces (i.e. dead cat bounces). The current bounce has not reached a 50% retrace from the prior high yet, meaning this technical bounce is not done. It will go higher. In fact, there's a bullish ascending triangle formation on the 5 day chart  converging on this Friday's CPI data.  If CPI comes lower than expected, the market should rally above this bullish ascending triangle and continue on it's true 50% retrace. As for the bottom, it's completely dependent on inflation. Many economists believe inflation peaked in March. Why? It's because inflation is measured year over year, so when inflation went extremely low during the pandemic lockdowns, the following year, down to the month, inflation spiked. Naturally, another year later (now), this means as inflation last year spiked, this year's year over year inflation data will show a slowdown due to the math. History shows when inflation is up, stocks go down. When inflation peaks, stocks go up.
Alan Rice
Alan Rice Jun 06, 2022 7:23PM ET
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(Are Earth's Economies SUSTAINABLE yet ?? ( No. )).
Tyler Phillis
Tyler Phillis Jun 06, 2022 7:23PM ET
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What a foolish question.
 
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