By Graham Summers, MBA
As I warned earlier this week, shares have misplaced their 200-day shifting common (DMA).
This can be a MAJOR growth. By way of seasonality, issues are normally fairly bullish this time of yr (the famed “Santa rally”). The actual fact the bulls did not hold the S&P 500 above its 200-DMA regardless of that is VERY bearish.
Keep in mind, the 200-DMA is sort of a “line within the sand” for long run traits out there. Throughout bull markets, shares hardly ever break beneath it. And through bear markets, shares hardly ever break above it. You may see this relationship clearly within the beneath chart. The 200-DMA is the crimson line.
Put merely, the failure to take care of the 200-DMA signifies that this current market rally was nothing greater than a Bear Market Rally, NOT the beginning of a brand new Bull Market.
Under is a chart of what occurred to shares after they failed to take care of their 200-DMA throughout the Bear Market of 2000-2003. I’ve highlighted this in crimson circles. Shares dropped one other 30%.
Right here’s the identical growth throughout the bear market of 2007-2009. This time round shares misplaced 50%.
So once more, the bear market shouldn’t be over. The pattern stays down. And shares may lose one other 30%-50% within the subsequent 12 months.