Image Source: PixabayThe chart below shows the three major indexes all falling below their early October lows, and it shows the SPX and Dow falling below their 200-day averages. There isn’t much here for an optimist other than to say that at some point stock prices will become so low that they are too cheap and bargain hunters will step in and buy.
One of the few charts that I have that isn’t outright bearish is this junk bond ETF. If the bottom were about to completely fall out from under the stock market, then I would expect this chart to look a lot worse.
I showed this chart last week when prices were still above the horizontal support and there was a chance that stocks would start firming up. So much for that, although prices are now within the April-May basing area which could be a better level of support. However, I might be dreaming.
How much longer can this market selling continue? The percentage of SPX stocks above their 50-day average, as shown in the bottom panel, is near the extremes reached last year. Stocks above their 200-day average, as shown in the middle panel, are also very weak but could fall a bit further.In other words, in terms of market breadth, the market could fall further, but it is getting very close to extreme oversold levels which is where major stock market bottom price patterns are formed.
When the market is ready to rally, we’ll see the number of new 52-week lows dry up, and the net new highs/new lows will trend higher.
I’m a believer in higher stock prices in the longer-term as long as this ECRI-leading economic index is above zero, which points to economic growth. If there is economic growth, then it favors higher stock prices.
Outlook Summary
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