According to technical indicators pointing at a downturn within sight, US stock traders must brace up for impact as the market may take a plunge.
While the stock market is still recovering from the impact of the June bear market, another may be at hand. Indicators are giving off a backtracking vibe. Possibilities of indexes reverting to the mid-June market position are afloat.
Stocks Lost Due To Inflation
S&P 500 lost 7% after rallying upward in the middle of August. It declined following the FED’s announcement to combat inflation hawkishly. The stock has since maintained its low position and is now flaunting probabilities of a further slump.
Hell broke loose in the stock market after the government hiked interest rates to lower CPI from its all-time high in 40 years. Analysts had to trade with caution because of the massive fall in stock prices.
Although the market started looking up last week, that did not last. Chart patterns, indicators, et al. that highlighted bullish sentiments began turning toward the opposite direction. And this has stirred up notions among investors that the bear market is not over yet.
John Kolovos stated that he had to erase hopes of a possible bull run due to the hit the market took recently. The CTS at Micro Risk and technical analyst has been following the market steadily since the bearish momentum began. He further said that the chances of witnessing another bottoming similar to June are high.
Indicators Behind The Bearish Sentiment
One of the indicators investors monitor to determine bullishness is the rate of stock convergence. If more stocks are rising than falling, it is a sign bulls are gaining strength. Unfortunately, the market is reacting oppositely as more indexes are falling than rising.
86% of Russell 3000 stocks were trading above the fifty-day MA in the middle of August. Right now, only 30% of them are. Kolovos opined that a drop below 25% would be bad for the market. Therefore, it is best to keep it at twenty-five percent or above.
Also, the S&P 500 attained a 3-month low which is a bearish sign. And the moving average receded to 10% from its initial 60% range. Analysts continue monitoring its momentum to determine whether there will be a change in bias.
Andrew Thrasher, the founder of Thrasher Analytics, said that his firm is keeping an eye on the index for more expansion.
Furthermore, S&P 500 has stayed under the 200-day MA for five months straight. The last time it stalled this long was during a bearish season in 2009. Bofa Global research affirmed a 1% increase in the index since it went below the 200-day MA.
NASDAQ fell by 10% after the bear market hit again in the middle of August. The index switched sentiment over to bearish after forming a head and shoulders pattern on the chart. And now, it has broken the neckline to confirm a bearish trend.
After delving to the 10,500 low, analysts see another fall around 8,800. On Thursday, the index peaked at 11,862.