You’re no doubt confused by the market’s action of the last week. Are we about to see a waterfall crash… or are stocks about to explode higher to new highs?
The answer is probably neither.
Markets are tricky things. More often than not, their goal is to induce the maximum amount of suffering to the maximum number of investors.
So let’s dive in together and sort this out.
On a daily and weekly basis, the S&P 500 is now trending down. The market broke below its 200-day moving average (DMA) for the first time since the March 2020 lows. That’s a BIG deal and suggests a new bear market is here.
However, on a monthly basis, the S&P 500 can still end January above the all-important 10-monthly moving average (MMA)at 4,427. This is a BIG deal for the bulls because every time the market has broken that line in the last five years, a bear market has hit, with stocks losing 20%-30% of their value quite rapidly.
Where does this leave us?
Well we’re likely to see the bulls push to end January (today) with the market above 4,417. After that, I wouldn’t see surprised to see total chaos in the markets with prices whip-sawing this way and that… much as they did last week.
However, the trend is DOWN which opens the door to some nasty drops in the future. The average bear market is 9-10 months and sees stocks lose 30% of their value. However, in recent years the drops have happened much faster than that.