Conditions are favourable, and the bleak market last week removed the last vestiges of hope for a rebound or rebound. It is now a decision to exit partially or completely. Whatever it is, expect the emotions to push into action, and that means the return of fear and panic.
Here’s how I arrived at those expectations…
After my writing was published on Friday (“The Stock Market Fear Has Delayed, So Be Prepared To Resurface”), I began reviewing my weekly chart analysis. The solid return chart for the S&P 500 in my Friday article set me up to expect a lot of negativity. However, what I found was downright ugly – and ominous. Looking at the weekly charts going back to the beginning of 2021.
I think those 16 months are the crucial period to affect investor sentiment. Since 2021 was a notable year that contained a lot of upside, reversing most or all of those gains in 2022 could cause investors to suffer and react emotionally.
What I didn’t expect is that the frustrating scenario now exists
Note: The charts at the end of this article show depressing images
The Nasdaq Composite has wiped out 2021 and more. The Nasdaq 100 Index, where popular leaders reside, is back where it started. The Dow Jones Industrial Average is better off (still up about 8%), but it never rode a speculative bull. then there The A benchmark for everyone: the Standard & Poor’s 500. It still held a 10% return for those 16 months, although that’s about a third of what it was four months ago.
but that is not all …
The widely used trend lines lost their upward movement. Moreover, there is a clear negative sign of the short-term trend line passing through the long-term trend line. Such moves are ominous.
Perhaps the worst are the shattered foundations that have only recently been built. All devices except DJIA were hacked last week with gusto. What are the remaining levels of support? None of substance. Moreover, core sales/earnings valuations are out the window because fears of inflation and recession are calling the outlook into question. Dividend yields also do not provide a cushion as bond yields continue to rise. Therefore, investors are now left looking only at the air below.
So what’s next?
Well, there is panic selling. As I wrote in my article on Friday, the missing ingredient in this bear market is investor fear. It will come, but I added that its long delay could mean we quickly see fear giving way to panic selling.
Before I did my chart, I thought it could be anytime during the next month or two. Now, I think it’s pretty close–maybe until next Monday morning.
I know! This is something to suggest. However, my experience tells me that all the bull supports are gone, so there’s nothing to hold back panic selling except for a fit of buying from who knows where or why.
Now imagine this weekend for investors. Can’t you just see them think about last week’s losses? Some (a lot?) may decide it’s time to come up with smaller, but at least positive gains – or a few losses. There are plenty of Wall Street axioms to support doing this. These sales will not be classified as “panic”, but if the volume is high enough, buyers will step aside to create the perfect environment for panic selling to drive a bear market. This has definitely happened before, and there’s nothing stopping it today.
Bottom line: Don’t depend on anything because your emotions are about to take over
Fear is coming, and panic selling will likely follow. The timing of emotional events is usually very difficult. However, with fear lags and stocks continuing to thaw, there is a real possibility that the outrageous duo will take the stage early next week — and perhaps even start as early as the opening bell on Monday.
Below: charts of weekly indicators covering the past 16 months
The first is to compare the cumulative performance of the four indicators. Below are separate price and performance charts for each index: S&P 500, DJIA, Nasdaq 100 and Nasdaq Composite.