Monthly Analysis: Financials

2022-06-04T08:46:18-05:00June 4th, 2022|Monthly|

The S&P 500 ($INX) remains in a major (long-term) downtrend. May saw the $INX extend this pattern to a low of 3,810.32 before rallying at the end of the month. However, this low was a 21% drop from the January 2022 high of 4,818.62, putting the $INX officially in a bear market. By definition, this occurs with a 20% break, in this case down to 3,854.90 (top dashed blue line). A Dow Theory 33% drop would put the target at 3,228.48 (bottom dashed blue line), also near the 38.2% retracement level of the previous major uptrend from 666.79 (March 2009) through the January 2022 high. Note this past January saw the $INX complete a bearish key reversal confirming the major trend had turned down.

The Dow Jones Industrial Average ($DOWI) extended its major downtrend to a low of 30,635.76 during May before rallying late in the month. Initial support is now the May low, the new 4-month low, with the 20% break level down at 29,562,12 (top dashed blue line) and the Dow Theory 33% retracement at 24,758.28 (bottom dashed blue line). The previous major uptrend ran from 6,469.95 (March 2009) through the bearish key reversal completed during January 2022, a pattern that included a high of 36,952.65.

The Nasdaq ($NASX) extended its major downtrend to a low of 11,035.69 during May, remaining deep within bearish territory below the 20% break price of 12,969.78 (top dashed blue line). In fact, the May low brought the Dow Theory 33% retracement level of 10,862.19 in view, with the 38.2% retracement mark of the previous uptrend from 1,265.52 (March 2009) to the high of 16,212.23 (November 2021) at 10,502.59. The $NASX officially moved into a major downtrend when it posted a new 4-month low below 14,181.69 during January 2022.

The US 10-year T-note (ZN) extended its major (long-term) downtrend to a low of 117-085 during May before rallying to close higher for the month. This completed a bullish spike reversal, confirming a new major uptrend indicated by a series of bullish crossover by monthly stochastics below the oversold level of 20%, most recently at the end of May as well. One of the characteristics of a spike reversal is a quick retracement, meaning the ZN could quickly challenge the June low. Theoretically, long-term investment traders could view this as a buying opportunity, running sell stops just below the May low.

A Technical Side Note: Keep in mind all three major stock indexes moved into major downtrends this past January, with the Nasdaq, the technology sector (including Apple, Microsoft, Amazon, Tesla, and Google) coming under the most pressure since.

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