Monthly Analysis: Financials

2022-07-03T09:27:14-05:00July 3rd, 2022|Monthly|

The S&P 500 ($INX) extended its major (long-term) downtrend during June to a low of 3,636.87, keeping in bearish territory below the 20% selloff level of 3,854.90 (top dashed blue line). The next level of interest is the Dow Theory 33% mark at 3,228.48 (middle dashed blue line). However, many late-to-the-party analysts are now calling for a 50% selloff back to near 2,409.30 (bottom dashed blue line), though this seems unlikely given monthly stochastics are already at or below the oversold 20% level. However, if we look back to 2008 and early 2009 we see monthly stochastics can stay oversold for a long period of time, making a 33% pullback possible. Recall the $INX completed a bearish key reversal this past January that include a new 4-month low below 4,278.94 which created a sell at the month’s close of 4,515.55.

The Dow Jones Industrial Average ($DOWI) extended its major downtrend to a low of 29,653.29 during June, keeping it above the bear market threshold  level of a 20% selloff near 29,562.10 (top dashed blue line). Note monthly stochastics have not moved below the oversold level of 20%, leaving the door open for continued pressure over the months ahead. If the DJIA comes under pressure during July, and it should, the next downside target is the Dow Theory 33% level of 24,758.28 (bottom dashed blue line). As with the S&P 500, the DJIA completed a bearish key reversal this past January with the monthly range taking out the previous 4-month low of 33,613.03. The created a sell signal at the monthly close of 35,131.86.

The Nasdaq ($NASX) extended its major downtrend to a low of 11,565.14 during June. This resulted in a test of the next target at the Dow Theory 33% selloff level of 10,862.19 (middle dashed blue line). Additionally, monthly stochastics remain well below the oversold level of 20%, setting the stage for a potential bullish crossover during the months ahead. Keep in mind this would not be a buy signal, but rather an indicator the major (long-term) trend could soon turn up. The takeaway is the Nasdaq could lead both the S&P 500 and DJIA meaning investors could start to get interested in technology stocks once again.

The US 10-year T-note (ZN) extended its major (long-term) downtrend to a low of 114-270 during June before again rallying to close out the month. While the move to a new low erased May’s bullish spike reversal, 10-year futures still look to be building a major (long-term) bottom on its continuous monthly chart. Still, it looks as if it will take a number of months to complete a clear bullish reversal pattern, most likely a new 4-month high. Monthly stochastics did establish a bullish crossover below the oversold level of 20% at the end of May, meaning the 10-year should continue to build toward a turn to a major uptrend.

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