Stock market at a turning point bull/bear
April reversed most of the stock market’s gains in March. This puts the indicators near their lowest levels in 2022. So, what now? One of two possible scenarios: a double-bottom foundation that supports new higher ups, or a breakdown to new lows confirming the downtrend.
Start with the 2021-22 stock market picture
Two elements to note:
- First, changing the rolling trend from November to December 2021. It was caused by uncertainty about construction, driven in particular by the high rate of inflation and its negative effects. (For more, see my November 24 article, “Here Comes an Unprecedented Inflationary Storm.”)
- Second, the weakness of 2022 for the previously leading indicators: Nasdaq Composite and Nasdaq 100 (the largest companies listed on Nasdaq). Oftentimes, when uptrend leaders weaken, this is a negative sign.
Next, check out the full picture of 2020-22 Covid
Below are the four stock indexes, using daily data. The long-term trend line is the 200-day moving average. The medium-term trend line is the 50-day moving average.
All four indicators (particularly the former leading Nasdaq indices) are showing weakness and downtrends. The issues are lower highs and lower lows, pullbacks through trendlines, and pullbacks of trendlines.
Now to the turning point
With indices hitting their previous lows in or near 2022, there are two main paths the stock market could take.
- The first is a bullish bounce, and the establishment of a double-bottom foundation is noteworthy. This move may be a positive signal that attracts buyers
- The second is a bearish decline to new lowswhich gives a confirmation signal that the downtrend is in order
Conclusion: So, which one will it be?
Besides serious doubts about inflation/interest rates, there are three negative issues calling for further declines ahead.
- Bullish March-April pattern fits bull trap pattern, bull traps are bear market events (see my March 31st article, “Stock Market Bulls Try To Revive Their Troubled 2021 Favorites – Don’t Hold Back”)
- This drop to previous lows occurs despite supposed positive earnings reports received
- There is still a lack of articles expressing stock investing negativity, fears, and ominous visions. (This is a counterintuitive because big market dips end in a flood of negativity. Instead, we get recommendations to buy stocks in times of inflation and rising interest rates.)
Therefore, cash reserves remain an attractive property. It allows focus on opportunistic investing rather than survival tactics.