S&P 500: Long Term Averages Remain Negative As June Lows Loom
2022.09.19 07:30
On Feb. 2, when the was trading at 4595, we warned investors against the consensus and the popular opinion that the widely followed benchmark would likely fall as far as 3800 in the coming months based on our research, which came to fruition just four months later.
I only bring this up because the last time I pessimistichis negative outlook, we saw a lot of pushback from investors on social media, many in denial, disbelief, or perma-bulls thinking that “stonks only go up.” While our research on the potential for SPX to fall 800 points did come to fruition, the fact remains that no one can predict theindeednd certainly not what the market decides to do.
What we can do as investors is to pay close attention to what the market is telling us with its under-the-hood technical indicators and use them as a guide to point us in the right direction. So, will this time be different? Well, I have no clue.
However, the weight of the evidence in The S&P 500 shows that the widely followed benchmark is now down -19.67% (from 52-week highs) and down -18.82% year to date, while the is down -29.21%, (from the 52 weeks high) the latter index representing the technology sector is weighing down the majority of stocks, will the S&P 500 play catch up with the NASDAQ?
The S&P 500 regained much of the year’s losses only to give back all the gains after the 200-day moving average rejection and the . Was it the CPI report, or would it have gone back down anyhow? The latter is the most likely.
Brace yourself for major indices to head for a re-test of the June lows. In all likelihood, the widely followed benchmark is trading below all of its moving averages, negative RSI and MACD indicators amidst increasingly heavy volume on down days with a massive bearish engulfing candle printing this week, solidifying that the down-trend in major indices is alive and well.
With major moving averages continuing to make new lows on heavy volume consistent with a continuing market decline (bear market), the monthly MACD is now at the lowest level in 20 years, with no sign of improving, sugng that more pain is ahead.
The S&P 500 is in bear market tedespitedless of not being down more than -20% for the year. Another metric that could be an even more precise method to determine bear market buy and sell metrics is measured by the percentage of stocks trading above the 200-day moving average. As of this writing, only 27.8% of stocks are trading above their 200-day moving average.
SPX daily chart.
The trading opportunities that have presented themselves during the latest volatility have been such an amazing blessing for investors, with the S&P 500 swinging from 3900-4300 in just a few weeks as the market undergoes a cyclical correction, trading within a range within what I believe is still a secular bull market.
As I suggested last month, June’s bottom is likely not the final one despite the most popular narrative “that the bottom was in for t. However, our research suggests the bottom may not be in yet.
Declining breadth amidst the declining percentage of stocks trading above the 200-day average and its inability to climb at least above the 50% level, according to recent Fed data, they have held back on following through on scheduled QT, likely in an attempt to stem the drain of liquidity with stocks in free-fall as the MACD reaches negative levels not seen in the last 20 years.
Tuesday’s loss pretty fairly significant for many investors, with Friday’s heavy losses only confirming that the major indices continue to affirm the market’s major down-trend. We look forward to this upcoming week with on center stage.
