We knew it was a possibility. On Wednesday it became a reality. That is, teetering on the edge of a breakdown, Wednesday’s market losses pulled another major index below key technical floors. The path back to bullishness just got much tougher to navigate… or even find.

The S&P 500 is the index in question. With today’s 33.5 point/0.76% setback, the S&P 500 is now below its 50-day moving average line (purple) at 4449.15. That’s the first time since March the index’s been under that level.

There is one semi-bright spot behind the move. That’s the lack of volume. As has been the case for a couple of weeks now, Wednesday’s volume was below average.

That’s a detail unique to the S&P 500, however. The NASDAQ Composite lost a lot of ground on Wednesday as well but did so on massive volume. It was already well under its 50-day moving average line at 13,796.7 but is even more so now. That puts a rebound further out of reach.

Perhaps the biggest red flag on both of the charts above, though, is the one that looks the least suspicious. That’s the volatility indices of both the S&P 500 and the NASDAQ Composite. While neither the VIX nor the VXN were catapulted higher today, they both clearly moved upward. The fact that they’re not “surging” or “spiking” is in some ways more bearish that they might be if they were moving higher in a big way. This gradual, shallow ascent leaves room more room for the VIX and VXN to continue climbing, with stocks sinking the whole time.

And make no mistake… the undertow is bearish. This is readily evident when looking at the market’s breadth and depth.

We mentioned this a week ago when we were looking at the then-budding breakdown of the so-called “Magnificent 7” stocks, but it bears repeating now. The market’s volume (depth) and a comparison of its advancers and decliners (breadth) matter.

There are often bearish clues buried in this data before it becomes clear the market is in trouble. That seems to be the case now -- as it was then -- but even more so as of Wednesday.

The chart below tells the tale. It’s a comparison of the NASDAQ’s advancers (ADVQ), decliners (DECLQ), up volume (UVOL), and down volume (DVOL). The daily data is too erratic to make much sense of. But, when we apply a moving average to these daily numbers we can easily spot a trend. That’s the thicker, smoother line in all of segments of the chart below.  The NASDAQ’s advancers and up volume have been shrinking for a while now, while its decliners and down volume have been rising. Not only did that not change on Wednesday, but these trends became even more pronounced.

Here's the same basic chart with a twist. Here we’ve overlaid the advancer and decliner trend-spotting moving averages, and then overlaid the up/down volume averages identified by their moving averages. Blue is bullish, and red is bearish. As you can plainly see from this vantage point, breadth and depth have been leaning in a bearish direction for some time now. That’s even more the case after Wednesday.

None of this necessarily guarantees stocks will continue to slide. On the other hand, weigh the odds and take the hints. We knew two weeks ago the market was overbought and ripe for profit-taking. This is just the realization of that reality. The selling so far is hardly enough to unwind that pent-up selling pressure. That’s particularly true given the bearish depth and breadth we’re seeing now.

The biggest risk at this point is mistaking a little bit of (or even a lot of) bullishness as the beginning of a prolonged rebound. Stocks could find some buyers on Thursday after a couple days’ worth of strong selling. That’s nothing more than a dead cat bounce though. Until the NASDAQ Composite and the S&P 500 are both back above their 20-day moving average lines (blue on the charts above) we have to assume this new bearishness will have to run its full course.

More By This Author:

The Bulls Have One Last Chance To Stop The Selling
Weekly Market Outlook - Bent, But Not Broken
Last Week's Stumble Could Mean More Than You Think... But Not For The Reason You Think