The market action is deteriorating rapidly, and we are getting very close to bear market territory for the Nasdaq 100 and the Russell 2000. From their recent highs to the recent lows, both indices fell over 16% which is not healthy, considering it happened in a few short weeks.
The typical definition of a bear market is a decline of 20% from a 52-week high, so another few “down days” could easily trigger a bear market for these indices. Separately, the Dow Jones Industrial Average and the S&P 500 are both in “correction” territory, defined by a decline of 10-19% decline from a 52-week high.
Under the surface, the action is going from bad to worse. The FAANG stocks are all in bear market territory except for Alphabet which is in correction territory. Furthermore, Facebook and Netflix are both down close to 40% which is not an insignificant sum. Other important areas of the market such as Housing, Financials, Industrials, and Technology (just to name a few) are all in correction or bear market territory.
The big problem is that we are not seeing new leadership emerge. Stepping back, the fundamental case for stocks is weakening as the global economy is slowing down and global Central Banks are tightening. Additionally, the technical case is weakening as well as we are forming a big top and the major indices erased their entire 2018 gains in the last few weeks. Unless we see bullish pixie dust show up, odds favor this will turn into a big top and we will enter a bear market in the near future. The big level of support to watch is February’s low.
MONDAY-WEDNESDAY ACTION:
Stocks fell hard on Monday after a slew of tech stocks fell and Vice President Mike Pence said in a speech Sunday that the US would continue with its tariffs until Beijing changed its ways. Currently, the U.S. imposed $250 billion worth of tariffs on Chinese goods and that has led many people to worry that the trade war will adversely impact the global economy.
