Health of the Market  (6/18/2022)

The charts will be updated by   every Saturday. When no change to text, [NC] will be used. Click for favorite investment websites. This site is part of Charlottesville's The Center at Belvedere Investors' Forum. Note: If the latest date does not show here or on charts, try reloading the page or clearing cached images.


[NC]  Risk management isn’t about being right.  It’s about protecting capital when you’re wrong.  -- Lance Roberts

[NC]  The S&P 500 hit an all-time high on Tuesday 1/4/2022. The indicators for the equity market show a down market within a bear cycle in a bear trend, and in a bear market (see definitions on Longer Term page). The plot of the advancing stocks less the declining stocks on the NYSE is way below its 200-day moving average as is the stock index.  Click here to check it out.

[NC]  A bear market is underway as, from the intermarket high to low for the S&P 500 on 5/16/2022, the drop was 21.10%, for the Nasdaq it was 32.25%, for the small-cap IWM it was 30.66%. 

The S&P 500 index closed down 5.79% for the week, after being down 5.05% the previous week. The Nasdaq index closed down 4.78% for the week, after being down 5.60% the previous week.  The small caps closed down 7.51% for the week, after being down 4.28% the previous week. 

11.6% of S&P 500 stocks were above their 200-day exponential moving averages, down from 25.8% the week before.  2.2% of these stocks were above their 50-day EMAs, down from 12.4% the week before.  12.5% of Nasdaq stocks were above their 50-day EMAs, down from 19.7% the week before (see chart).

[NC]  For 2021, the SPY was up 28.7%; the Nasdaq QQQ was up 27.4%; the mid-cap IWR was up 22.4%; and the small cap IWM was up 14.5%.

[NC]  The percent moves by some primary exchange-traded funds are shown ranked by their one-month gain.   (Chart from FundBuster.com.)  Note that PDBC is the Commodity Index Tracking ETF (so no IRS K1 form involved).



[NC]  A three-month performance chart of the Nasdaq QQQ exchange-traded fund is below. QQQ delivers a mash-up of tech, growth and large-cap exposure that excludes financial stocks. The fund and index are rebalanced quarterly and reconstituted annually.


[NC]  The Power Zone, the favorable time of the year, ended early on 4/8/2022. The Power Zone typically starts sometime in October and ends sometime in May. See the Market Cycles page for more. The Bear Cycle that started on 1/21/2022 continues.  Charts for the second year of the presidential cycle are shown on the Cycles page. June is usually a down month in general and especially in this presidential cycle year..

[NC]  The CNN Fear & Greed Index gives an interesting perspective on the internals of the market. The trend of the components of this index are important to gauge the trends of the market.

[NC]  A measure to determine if the price is too high relative to the underlying earnings is the Shiller price to earning ratio. This is the current price divided by the 10-year average of "real" (inflation-adjusted) earnings. This ratio corresponds quite well to the peaks of price as shown by charts on this site.

[NC]  John Murphy of StockCharts.com asks "Why do we look at charts? - They provide the most up-do-date information on the state of the stock market. They may also be telling us something about the fundamental reports we won't be getting until much later. Charts track forward-looking markets, while fundamental data is backward looking. It's always safer to look out of the front window of your car while driving to see where you're going. Not the back window that shows you where you've already been."

[NC]  A chart from 1870 that shows the relationship between the market and its long-term regression line can be seen here.  It is way above the line, which means it may at some time revert back to that line.


Stock Market Action

[NC]  The large-capitalization S&P 500 index is shown with its gray Bollinger Bands below. The bands are two standard deviations above & below a 20-day simple moving average. When the price goes above or near the edge of the upper Bollinger Band a downswing in price is likely as the market is overbought. Similarly, when the price goes below the lower band, the market is oversold, and an upswing is likely. The 14-day RSI is a measure of the price momentum. Below 50 indicates negative momentum.  A divergence with price is an indication that the price trend is likely to change.

The 14.6% drop from the all-time high in January ended in March when a strong rally took the index above it's 200-day MA and the previous February highs. That rally ended with a huge 17% drop below both moving averages as shown. The bear market correction rally is now over. The Bear Market continues!  The Fear & Greed Index shows fear.

[NC]  The Russell 2000 small-cap index (shown by IWM) had been in a horizontal channel for a year. It broke below this channel with a death cross of the 50-day MA crossing below the 200-day MA. The RSI showed a way oversold small-cap market, and a short-term correction of this dramatic down swing occurred resulting in the bearish flag formation shown. After consolidation and a large 19% drop, the correction of that drop is now over.


The technology-heavy Nasdaq composite index hit a new all-time high on November 22, 2021. It then dropped below its 200-day MA and a death cross occurred on 2/17/2022. After a double bottom in March the index rallied above it's 50-day MA. Then the bear market continued with a correction of the large 24% drop. That is over and the bear market continues.


[NC]  Sector investing via exchange traded funds (ETFs) is popular. The traders rotate between sectors. To see how some popular sector ETFs are doing, click here for the Candle Glance of two-month charts. The charts include the StockCharts Technical Ranking (SCTR). The sector ETFs used in the Candle Glance are these.

[NC]  Here is a map of popular ETFs arranged in significant groups.  This link gives gain or loss in a week with a small chart when you hover over the group.

[NC]  The international bond market is provided by the WSJ. See the Income tab for a chart of U.S. Treasury yields. 2020 ended with the 10-year treasury note at 0.93% and the 2-year note yield was 0.13%.

[NC]  The stock markets in other countries can diversify a portfolio. To participate in these markets, the U.S. dollar can be hedged out. Click to check out the country hedged ETFs and the un-hedged ETFs.

[NC]  Note that BSE SENSEX is an India index, CAC 40 is France, FTSE 100 is a UK index, Nikkei 225 is Japan, Hang Seng is Hong Kong, DAXK is Germany, and Shanghai is, of course, Shanghai.




Dollar Influence


[NC]  The dollar ($USD) and the 10-year Treasury rate ($TNX /10) are shown in a 6-year chart with weekly closing prices. The earlier dollar rise peaked in March 2020. The quick drop since then accelerated and ended with a double bottom in the spring of 2021.

[NC]  A falling dollar has a positive influence on the U.S. market, especially large cap multinationals as prices for our customers overseas are less expensive. However, a weaker dollar makes product imports (some in the supply chains) get more expensive. This has a negative effect on technology companies.

[NC]  The 10-year Treasury rate rose to a peak on 10/5/2018 and 11/8/2018 closing at 3.23% both times. It hit a low in March and August 2020 around 0.5%. Now it is on a long-term rise due to falling bond prices.

[NC]  Ed Yardeni in the 2/9/19 Barron's stated that, based on his 40 years of experience, he has never found that supply-versus-demand analysis helped much in forecasting bond yields.  It's always been about actual inflation, expected inflation, and how the Fed was likely to respond to both.

[NC]  Also shown is the CRB Commodities Index, which is a measure of inflation. This index is an unweighted geometric average of prices across 17 commodities including energy, grains, industrials, livestock, precious metals, and agriculturals. A falling dollar helps commodity prices.

[NC]  The price of gold had risen dramatically until the several year pull-back. The gold and silver miner ETFs (GDX and SIL) had gone up even more. Now they are correcting from the breakout shown.

[NC]  Commodities continue to rise due to the war, which is increasing inflation. A good ETF to invest in commodities is PDBC.  Oil prices soared to a high of $130 per barrel.



Long-Term Overview

[NC]  The Federal Reserve controls the Federal Funds Rate, which is the interest rate at which banks lend reserve balances to other depository institutions overnight on an uncollateralized basis. It also tends to effect longer-term rates. On 3/15/2020 an emergency rate cut set the benchmark interest rate between 0% and 0.25%.

[NC]  The chart below gives an overview of the situation. The market had done well since the termination of the QE3 Fed bond buying, until the last half of 2015. The 10-year Treasury rates moved down as the Fed raised the over-night Federal Funds Rate in December 2015. There were a total of nine 1/4 point rate increases, the last one in December of 2018. The Fed cut the rate at its July 2019 meeting, and more cuts followed as shown below. In May 2022 the Fed started to raise the rate to slow the economy to fight inflation. A chart of various Treasury yields since 1962 are shown on the Income tab.

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The source of the charts is located on the upper right of the chart. This page is for amusement only, and should not be taken as advice to buy or sell anything.