Bear Market - Are We In One Already?

Bear Market - Another Terrible Day Of Selling

In the short term, I was very wrong to be bullish as of Friday’s close. Stocks fell sharply on Monday, which makes them even more oversold.

It’s almost as if the market is doing whatever it takes to get the Fed to not hike rates on Wednesday. Volatility and lateness of the cycle make this the most important Fed meeting in years.

Bear  Market - New 2018 Low

S&P 500 was down 2.08%. That’s not close to the worst day in this correction. But it’s important because the S&P 500 fell below the February low, marking the lowest point in 2018. The 14 day S&P 500 is at 36.93 which signals the market is close to being oversold, but it’s not there yet.

CNN fear and greed index weirdly increased from 8 to 10. Volatility index is neutral in this rating system because the 50 day moving average has increased so much that the current elevated level has become the new normal. VIX was up 13.36% to 24.52. That’s certainly not normal for a bull market.

Bear  Market - Start Of A Bear Market? Small Caps Are There

Some bearish traders think a bear market is already here. Yet there’s little evidence of a recession. Also, S&P 500’s forward PE has fallen sharply, and sentiment is horrible. 55% of S&P 500 stocks are down over 20% from their 52-week highs and 44% are down at least 25%.

Keep in mind, figuring out whether this is a bear market doesn’t matter nearly as much as where stocks are headed. We leave the definitions to the historians. Instead of a bullish investor claiming this isn’t a bear market, they can say we’re in one and it’s almost over based on the carnage.

The chart below shows the percentage the 50 largest companies are below their 52-week lows.

You can see the FAANG names are all down more than 20%. Merrill Lynch sentiment poll which said the FAANG stocks were the most over-owned group in the summer was correct. It correctly advised investors to sell these names. Keep that in mind when I review this survey in a subsequent article.

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