Two Clues That Could Confirm a Bear Market in US Stocks

The basic definition of a bull market is a series of higher tops and higher bottoms.  On 1/20/22 the S&P 500 (SPX) moved below the prior correction bottom made on 12/03/21.  This  break below important support was a significant clue that a bear market may have begun after the SPX 01/04/22 all-time high.

In the next few trading  days  two other events could  confirm a  US Stock bear market.

Traders/fund managers  measure their performance relative to  SPX action.  The SPX – 200 –day Moving Average (MA) is perhaps the most widely followed price indicator.  Moves above the 200-day – MA confirm bull markets, moves below the 200 – day – MA confirm bear markets. 

Whenever the SPX nears or reaches the 200 -day – MA it probably triggers a massive battle between bulls and bears as  each side fights for dominance.  The question, how big of a break of the 200 – day – MA would indicate which side is  winning?

I’ve done an extensive study of the SPX price action relative to its 200 – day – MA going back more than twenty – years.  The majority of the time when the SPX has a break of less than 2% below the 200-day -MA  it indicates a correction within a  bull market.  Breaks  greater than 2% are hints that additional bearish action could soon be coming. The initial breaks below the 200- day – MA  are usually  in the range of one to five – trading days.

The daily SPX chart courtesy of Trading View illustrates breaks of the 200 – day – MA since February 2020.

On 02/28/20 the SPX broke more than 6% below the 200-day – MA indicating the bulls could not defend the line and hinted the bears could soon be ready for a  more vicious attack.

The bear runs that culminated on 06/15/20 and 06/29/20 showed the bulls were in control by holding both breaks of the line to less than 2%.

The break on 01/21/22 has so far only gone .76% below the line.  SPX reaction to the FOMC interest rate decision on 01/26/22 could give a decisive 200 – day – MA signal.

Whenever a stock or a market does something different from normal behavior it’s  usually a clue of a  developing trend change.  For the SPX in 2022, the “something different” would be a decline greater than 10.55% from the high made on 01/04/22.

So far the largest correction of the SPX bull phase that began in March 2020 was the 10.55% correction that terminated on 09/24/20.   If within the next few trading days, the SPX can reach 4310.26 it will equal the 10.55% correction of September 2020.  A  move below 4310.26 would be “something different.”

Within the next few trading days there could be two clues confirming  a  bear market in US stocks.

Published by Mark Rivest

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.

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