Common Sense Living

Key Stock Market Indicators – SEVERE PAIN AHEAD!

The S&P 500 stock market index made a decisive break below the 200-day moving average (DMA) today, falling over 3% on the day.

The 200-day moving average (DMA) is a key level programmed into trading software used by brokerage houses around the world.  The software will typically conduct BUY orders when the market drops to the 200 DMA level.  Conversely, if the level is broken, the software is often programmed to SELL.  Falling below the 200 DMA, as happened today, is a common sign of more pain ahead!

The chart below shows how in February, April, and May of this year, the S&P 500 (as represented by the SPY ETF) bounced off the 200 DMA (the red line).  On the right, there is a decisive break below the 200 DMA.

Chart20181024-1

In addition to this daily chart, I utilize a set of technical indicators which are extremely reliable in predicting a change in market trends (i.e. moving from a bull market to a bear market, and vice versa).  You can read about the details of this indicator here:  Can You Time The Market?

This second chart below shows how this month, my indicators are now showing a transition from a bull market to a bear market.  The RSI has clearly pulled out of overbought territory, and today, the MACD began a bearish crossover.  To be confirmed, the indicators would need to remain this way through the end of October.

Also circled are the prior indications of a market direction change.

Chart20181024-2

All the pieces of an impending recession (or as I believe, a depression) are falling into place.

We have massive financial bubbles in the stock, bond, real estate, and derivatives markets.  We have rapidly slowing auto sales.  We have rapidly slowing real estate sales.  Retailers are declaring bankruptcy at an increasing rate, with Sears being the latest.  And most of all, we have the Federal Reserve determined to raise interest rates much higher!

Now is NOT the time to be brave and jump into this market thinking you will get a good deal.  You won’t!  I am calling for a 50%+ decline in the market, not much unlike the two previous downturns you see in the monthly chart above (years 2000-2002, and 2007-2009).  This will be a multi-year downturn.  Be patient.

 

 

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