Stocks have been rising nearly unabated for 2 months. A lot of that was because it was easy for stocks to “climb the wall of worry” created by the initial decline into bear market territory. Meaning…
that it was fairly easy to find just enough silver linings or things not going as bad as advertised for stocks to bounce from that recent bottom. However, as we are finding out now…all good things must end.
Meaning that investors finally found resistance at the 200 day moving average of the S&P 500 (SPY) at 4,326 and retreated quickly from that mark into the finish line on Tuesday. Expect this level to denote the near term highs for the market as we likely enter a consolidation period with trading range to follow.
Why? And what is the parameters of this trading range? And what will cause us to break out of the range?
All that and more will be the focus of this week’s Reitmeister Total Return commentary.
Technically speaking…we are still in a bear market. That certainly is confusing to many investors given several weeks of upward price action. So let me spell it out for y’all.
The definition of a bull market is when you come out of a bear market and have risen 20% from the bottom. Well the recent bottom for the S&P 500 (SPY) is 3,636.87 and yet today we closed at 4,305.20 which is 18.38% above the lows.
It may sound like mincing words to keep calling it a bear market as it’s pretty close to 20% above the lows. However, I think its an important distinction at this moment to help set up a true battle for the soul of this stock market.
The bulls have indeed grabbed the upper hand over the last 2 months. But a lot of that was just “climbing the wall of worry” as the market days quite often. That being where sentiment is so bad that it only takes things coming in a notch worse than horrific to spark a rally. And once the rally is underway you get the FOMO part where folks are afraid of missing out on the upside potential.
It is one thing to say things are not really that bad versus saying they are good enough to promote the full re-emergence of the bull market. That is why the 200 day moving at 4,326, also known as the long term trend line, provides a very interesting battle ground for investors.
Check out the intraday chart from Tuesday below to see how stocks flirted with the 200 day moving average and then quickly reversed course:
It is my strong belief that there is not enough serious bullish sentiment to create a break above the 200 day moving average at this time. On the other hand, the bears have more to prove to make their case. This creates the perfect environment for a consolidation period and trading range.
Yes, the relationship between high inflation and recessions/bear markets to follow is very strong as can be seen in the chart below:
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