The stock market is at a bullish/bearish tipping point

April reversed most of the stock market’s gains in March. This puts the indices near their 2022 lows. Now what? One of two likely scenarios: a double bottom foundation that supports further upside, or a drop to new lows that confirms a downtrend.

Start with stock market 2021-22 image

Two things to note:

  • First, the shift in rolling trend from November to December 2021. Its cause was growing uncertainty, fueled in particular by the rise in the rate of inflation and its negative effects. (For more, see my November 24 article, “Here Comes An Inflationary Storm Like None Before.”)
  • Second, the weakening in 2022 of previously advanced indices: Nasdaq Composite and Nasdaq 100 (the largest companies listed on the Nasdaq). Often when the leaders of an uptrend weaken, it is a negative sign.

Next, examine the full picture of Covid 2020-22

Below are the four stock market indices, using daily data. The longer-term trendline is the 200-day moving average. The mid-term trendline is the 50-day moving average.

All four indexes (especially those of the previously leading Nasdaq) are showing weakness and declining trends. The issues are lower highs and lower lows, falling through trendlines, and falling trendlines.

Now at the tipping point

With indices at or near their previous 2022 lows, there are two main paths the stock market could take.

  • The first is a bullish bounce, establishing a remarkable double bottom foundation. Such a decision could be the positive sign that attracts buyers
  • The second is a bearish drop to new lowsgiving a confirmation signal that the downtrend is intact

The Bottom Line: So Which Will It Be?

Along with severe inflation and interest rate uncertainties, three negative issues argue for further lows to come.

  1. The March-April pattern down fits the mold for bull traps, and bull traps are bear market events (see my March 31st post, “Stock Market Bulls Attempt to Resurrect Sick 2021 Favorites – Ne you don’t get tricked”)
  2. This drop to previous lows comes despite supposedly positive earnings reports ahead
  3. There continues to be a lack of articles expressing negativity, concerns and worrying views about stock investing. (This is a contrarian indicator because major market declines end in a flood of negativity. Instead, we get recommendations of stocks to buy during times of inflation and rising prices. interest rate.)

Cash reserves therefore continue to be an attractive asset. They allow you to focus on opportunistic investments rather than survival tactics.

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