Relentless Stock Market Decline

For several weeks US stocks have been in a relentless decline.  In  the next few weeks could there be more downside action, perhaps 10, 15, or 20% lower?  An examination of the Nasdaq Composite reveals  some amazing data.

The  Nasdaq Composite  has dropped 31.9% from its all- time high.  The S&P 500 has  fallen  20.9% and the Dow Jones Industrial Average 17.1%.  The Nasdaq Composite is  leading the way down – let’s  take a look at its  long-term momentum.

The weekly Nasdaq Composite chart courtesy of BigCharts.com – symbol (COMP) illustrates  the action during  the prior five-years.

Weekly Slow Stochastic has  reached the deepest oversold level since December 2018 with a bullish lines crossover. Note –  COMP has been below the lower  Bollinger band for two weeks.  In December 2018 COMP was  below the lower band for two weeks.

Weekly RSI has as of 05/20/22 has  reached its lowest level since March 2020. 

BigCharts.com has weekly COMP – MACD readings going all the way back to 1981.  The  MACD -lines reading  made on 05/20/22 is the most oversold ever.  Also note the Histogram bullish divergence.  The next most oversold MACD –  lines reading was made in April 2001 just before a one-month COMP rally.

The monthly COMP chart broadens the scope.

On 05/20/22 COMP was close to touching the lower monthly Bollinger band.  The last two times  the lower line was  touched came in  March 2020 and February 2016 – both were important bottoms.

Monthly Slow Stochastic is nearing the level reached in March of 2009 .

For the first time since the start of the secular bull market in March of 2009 the monthly RSI has decisively broken below the 50% line.  This implies   a bear market may have begun.

The monthly  MACD  has  a bearish lines  crossover suggesting  at least a multi- month bear market is underway.

Bull markets don’t go up in a straight line and bear markets don’t go down in a straight line. 

The monthly data suggests US stocks could be in a bear market.    

Weekly data suggests that near term the bulk of the decline is  behind us.  Now is  not the time to go short.  The historically deep oversold readings  imply an intermediate term bottom is near or could have been made on 05/20/22.       

Traders were stopped out of half of a 100% long position on non-leveraged SPX related funds when the SPX went below 3825.00. The position was initiated on the SPX 05/13/22 open at 3963.90.  the loss on half of the position was 1.75%.  Continue holding the remaining half with a stop loss on an SPX move below 3795.00.

If the SPX  05/20/22 bottom holds and moves above 3963.90, there could be an opportunity to add on to the long position.