The broad market environment is the single most important factor to consider when investing in stocks or stock-related ETFs. Are we in a bull market or a bear market? The recent expansion of new lows and the 5/200 cross in the S&P 500 suggest that we are in a bear market environment.
The chart below shows the S&P 500 in the top window and the High-Low Percent indicators for four major indexes in the lower windows (S&P 500, S&P MidCap 400, S&P SmallCap 600 and Nasdaq 100). First and foremost, the S&P 500 is in a downtrend because the 5-day SMA (green) is around 5.5% below the 200-day SMA (red). The S&P 500 is the most important benchmark for US stocks and a downtrend bodes ill for most stocks.
The High-Low Percent indicators were strong until November 2021, took a hit in December and turned bearish here in 2022. The red arrows show S&P 500 High-Low% and S&P MidCap 400 High-Low% dipping below -10% in late February. Prior to that, S&P SmallCap 600 High-Low% and Nasdaq 100 High-Low% dipped below -10% in late January. These moves below -10% broke my bearish threshold and show an expansion of new lows throughout the market. This is bearish for the broader market.
High-Low Percent equals the percentage of stocks hitting new 52-week highs in an index less the percentage hitting new 52-week lows. A stock is in a strong downtrend and leading lower when hitting a 52-week low. The more stocks in strong downtrends, the more bearish for the market. The green lines are at +10% and the red lines are at -10%.
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This week's Next Level Charting video (here) covered the bullish setup in the 10-yr Treasury Yield (bearish for bonds), the breakouts in the Silver and Defense ETFs, and the long-term bullish setups in some clean energy ETFs.
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Arthur Hill, CMT
Chief Technical Strategist, TrendInvestorPro.com
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