The Bear Case
Today, we’re getting spooky and looking at the bear case for equities.
After yesterday’s Playbook laid out how this correction could potentially be nearing its end, I wanted to take the other side and objectively show some of the very real problems and potential problems that this market has.
Specifically, we’ll cover:
What broken divergences look like
Faltering cyclical groups
Downside targets for major indexes
Troublesome trends in rates and the dollar
Poor near-term technicals
Short-term downtrend, broken support for the S&P 500
On a short-term basis, the S&P 500 is falling and before we can talk about stocks going up, they have to stop going down. Both the 1 and 3-month moving average slopes are negative, and the S&P 500 has yet to overcome its 5-day moving average, which acted as resistance again yesterday. Longer-term, the index has broken key support at 4172-4180 and needs to get back on the right side of it.
Long-term breadth remains awful
Yesterday, I showed some bullish divergences in terms of the percentage of stocks above shorter-term moving averages. But long-term trends are getting worse, not better. The percent of stocks in the S&P 500 above their 200-DMA has fallen to just 24%, its lowest level since October of last year, while NYSE net new high data shows 12% more stocks at 52-week lows than 52-week highs.
These aren’t divergences
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