Is a bear market on the way? My research suggests the downward sloping trend line (light orange in the daily/weekly SPY chart below) may continue to act as solid resistance – possibly prompting a further breakdown in the markets for major US indexes.

As we’ve seen recently, news and other unexpected events prompt very large price volatility events in the major US indexes. For example, the VIX recently rose above 30 again, which shows volatility levels are currently 3x higher than normal levels.

Increased Volatility & The Start of an Excess Phase Peak Should be a Clear Warning

This increased volatility in the markets, coupled with the increased fear of the Fed and the global unknowns (Russia-Ukraine tensions, China, debt levels, and others), may be just enough pressure to crush any upside price trends over the next few months. Technically, my research suggests the $445 to $450 level is critical resistance. The SPY must climb above these levels to have any chance of moving higher.

Unless the US markets find some new support and attempt to rally back towards recent highs, an “Excess Phase Peak” pattern will likely continue to unfold throughout 2022. This unique price pattern appears to have already reached a Phase 2 or Phase 3 setup. Please take a look at this Weekly GE example of an Excess Phase Peak pattern and how it transitions through Phase 1 through Phase 4 before entering an extended bearish price trend.

The SPY May Already Be In a Phase 4 Excess Peak Phase

This Daily SPY chart highlights my analysis, showing the major downward sloping trend line, the Middle Resistance Zone, and the lower Support Zone. Combined, these are acting as a “Wedge” for price over the past few weeks – tightening into an apex near $435~440.

If the major US indexes attempt to break this downward price trend, then the price must attempt to move solidly above this downward sloping price channel and try to rally back into the Resistance Zone (near $445~$450). Unless that happens, the price will likely transition into a deeper downward price move, attempting to break below recent lows, near $410, and possibly moving down to the $360 level.

SPY Weekly Chart Shows Consolidation Near $435 – Possibly Starting a Phase 4 Excess Peak

Traders should stay keenly aware of the risks associated with the broad US and global market decline as the Ukraine war and other unknowns continue to elevate fear and concerns related to the global economy.

In my opinion, with the current excess global debt levels, extended speculative market bubbles, and the continued commodity price rally, we may be starting to transition away from an extended growth phase and into a deeper depreciation cycle phase.

My research suggests we entered a new depreciation cycle phase in late 2019, and we are already more than 25 months into a potential 9.5-year global depreciation cycle. What comes next should not surprise anyone.

Traders should stay keenly focused on market risks and weaknesses. I expected the conflict in Ukraine to have been priced into the US markets over the past seven or more days. However, I believe the markets were unprepared for this scale or invasion and will attempt to settle fair stock price valuation levels as the conflict continues. This is not the same US/global market bullish trend we’ve become used to trading over the past five or more years. 

Looking Forward - Preparing for a Possible Bear Market

Market dynamics and trends are changing from what we have experienced over the past 40 years for stocks and bonds. The 60/40 portfolio is costing you money now. Traders need an edge to stay ahead of these markets trends and to protect and profit from big trends.

The only way to navigate the financial markets safely, no matter the direction, is through technical analysis. By following assets and money flows, we identify trend changes and move our capital into whatever index, sector, industry, bond, commodity, country, and even currency ETF. By following the money, you become part of new emerging trends and can profit during weak stock or bond conditions.