...Originally posted in Mid-Dec & prior. My word, how things have progressed!
As each candle on the daily & weekly chart prints, to me it more & more looks like a good old bear market is now (finally!) forming. It's been so many years now, can you remember those?! If so, I would suggest it's WELL overdue. Let's face it, the March 2020 "crash" wasn't a real bear market. However, it was a very sharp & swift correction. As we know, it was the fastest decent drop from an ATH in history (over 35% fall in less than 30 trading days from the ATH), but which then went on to be totally retraced & go on to further new ATH's (all within just 6 months!).
With just 4 trading days left in the month the S & P is now clearly showing a bearish engulfing candle on the Monthly chart. Yet another signal that if confirmed we should take heed of. Additionally, when looking at the weekly & daily charts one can clearly see the charts are showing more of a 'rounded top'. This is the shape one would normally expect for indices (as opposed to individual stocks, commodities etc which can produce more sharply shaped formations ) to print when evolving into a decent Bear Market. '29, '73, '87, '09 ALL showed rounded tops. During these rounded tops the "smart money" starts to exit, whilst the "not so smart" keep buying the dip.
The psychological condition of the market certainly appears to be changing in 2022.
So, where to from here?
- As the market psychology changes from a long-term bullish mindset to a bearish mindset it is likely volatility will remain more elevated for a period. We are certainly seeing some of that whipsawing action intraday already.
- The 200 DMA has been pierced to the downside (first time in 2 years),
- and the 4600 Fibonacci and S/R line mentioned above has been blown away like a line in the sand on a windy West Coast beach.
If I'm on the money and this is the beginning of a BEAR Market, then the eventual targets to the downside will be dependent on which time-cycles are in play. IMHO we are more likely to see a decent Bear market play out over months/years, rather than just days/weeks.
FWIW, Bear markets aren't all bad. They are actually needed to clean things up a bit and set up conditions for sustainable Bull market to prevail later. They are part of a healthy & well functioning market. Remember though , in this case the S & P hasn't been in a Bear Market for a record 13 years. Just think, there will be a few young retail investors who have never truly experienced a Bear Market!
Number wise, even when just looking at the leg up from 23/3/20 and using Fib and historical S/R, at the absolute minimum initially the 3200-3500 zone looks like a big magnet to me. NB. It just happens the Feb 2020 swing high is smack in the middle of that range too.
First though, we now need to see a 2DC below 4200 to strengthen the Bear's case. Later this week, or early next month?