The 01/24/22 blog “Something Different is Happening” focused on what are sometimes referred to as external indicators such as price levels and moving averages, these are factors that are known to the vast majority of traders/investors.
The 01/24/22 blog noted three bearish external events. The S&P 500 (SPX) went 4.7% below its 200 – day moving average. The SPX also declined 12.4% from its all-time high – the largest drop since March 2020. Additionally, the SPX broke below 10/04/21 chart support.
Advance/decline lines, new 52 – week highs/lows and Bullish Percentage indices are sometimes referred to as internal indicators. They are not analyzed to same degree as external indicators and could be considered as action taking place underneath the surface of prices.
The daily SPX – Bullish Percent Index ($BPSPX) chart courtesy of StockCharts.com illustrates its action since January 2020.
Bullish Percent Indices are breadth indicators that shows the percentage of stocks on Point & Figure Buy Signals. There is no ambiguity on P&F charts because a stock is either on a P&F Buy Signal or P&F Sell Signal.
$BPSPX at the SPX 01/04/22 all-time high had a double bearish divergence vs. the $BPSPX high made in June of 2020.
The subsequent decline after 01/04/22 has brought $BPSPX to its lowest level since the bull phase began in March 2020. A case could be made that the depth of the decline indicates an oversold market poised for a new bull phase. However, this condition coming immediately after a multi- month double bearish divergence signal is more likely indicating the beginning of a developing bear market.
The weekly NYSE – New 52-week lows chart ($NYLOW) also courtesy of StockCharts.com shows the recent explosion of stocks making 52 – week lows.
Note the surge of new lows during the small correction in November 2021 which so far is the final pullback prior to the ultimate price high of early January 2022. The subsequent explosion of new lows on the drop after the 01/04/22 high is nearly triple the November 2021 surge.
Also note the level of new lows at the correction that terminated in late October 2020. The SPX at the end of October 2020 was almost 10% below its September 2020 peak. During the January 2022 decline the SPX was down 12.4% below its January top. The difference between the declines of January 2022 of 12.4% vs the 9.8% drop in October 2020 is not very large when compared to the difference in new lows.
In October 2020 there were 98 stocks making new 52 -week lows. The January 2022 decline had 792 stocks making new 52 – week lows. Eight – times greater than the October 2020 correction! In January 2022 “something different” is happening.
The something different is probably the kickoff phase of a bear market that could extend well into 2022 and perhaps beyond.
Four Dimension Trading 