Brandon Wendell, CMT
Brandon Wendell
In my last article, we took a deep dive into the S&P 500 index to evaluate the signs and likelihood of a bear market. Today, we will examine the other equity market indexes to see if they are also indicating a bear market correction. There are four major stock market indexes in the United States, the S&P 500, the Nasdaq, the Russell 2000 and the Dow Jones Industrial Average. While they are all made up of stocks, each has their own individual characteristics due to the stocks that make them up.
The Nasdaq 100 index is an index that is comprised of the top 100 stocks listed on the Nasdaq exchange. As you can see below, the index is weighted heavily in the technology industry. The Dow Jones Industrial Average (the Dow), is one of the most popular indexes and most quoted in the world. It is interesting because it is made up of only 30 stocks. While many quote the Dow as a proxy for the American Economy, it is in fact a poor representation of it and is unevenly weighted.
The Russell 2000 index is made up of smaller companies that have most of their business dealings within the US. The weighting of the index is also more aligned with the economy of the US. The largest sector portion of the index, financials, is also the largest employer. This makes the Russell 2000 index a better barometer for measuring the health of the stock markets and the economy.
During the 2007 market crash, the Russell 2000 index peaked well before the other indexes. This relatively unfollowed index showed traders who were paying attention that the markets were worsening and that the new highs in October 2008 were not going to last.
The same picture is happening today. The Russell 2000 index peaked in August 2018, before the peak of the other indexes in September. Since then, there was a drop in the index of over 27% from those highs. At the time of this writing, the Russell index is still down over 17% from the highs.
Looking at the daily picture of the Russell 2000, we are indeed seeing some bear market signals. Prices were hitting a daily supply zone on January 14th and it looked likely to continue its march downward. The momentum indicator shown on the chart verified that supply should hold, and lower prices are coming. This may lead the other market indexes lower as well.
Looking at the big board, the Dow isn’t fairing much better. There was negative divergence that warned of prices turning down before the fall drop. The fact that the RSI cannot get above 60 on any of the market rallies is typical of a bearish environment. Add that to the fact that price has made lower highs and lower lows and you need to be protecting your retirement accounts.
The Dow is also in supply on the daily chart and looks to be headed for lower prices soon.
The tech heavy Nasdaq 100 has not been spared from this selling pressure. As with the other indexes, there was a divergence on the indicators which hinted at price weakness before the drop late last year.
On the daily chart, the Nasdaq is primed to turn lower from the current supply zones it is trading in, too.
So where does this leave us? If you listen to most brokers and money managers, they will tell you to just hang in there and that your money will be fine. But was it fine in 2008 to watch your retirement accounts lose nearly 50% of their value and be forced to wait for five years for them to get back into positive territory?
The markets tell you where they are going. You need to listen and act. We only have so much time in our lives. When we suffer through bear markets due to inaction, it delays our ability to retire comfortably. Do not be a victim of bad financial advice, take charge of your own accounts and become an educated investor. There are excellent opportunities for you to grow your wealth even in bear markets. Do not sit by and waste your precious time. Learn how you can invest and trade the right way so that you can enjoy life on your terms!
Read the original article here - Dire Market Warnings
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD hovers around nine-day EMA above 1.1800
EUR/USD remains in the positive territory after registering modest gains in the previous session, trading around 1.1820 during the Asian hours on Monday. The 14-day Relative Strength Index momentum indicator at 54 is edging higher, signaling improving momentum. RSI near mid-50s keeps momentum balanced. A sustained push above 60 would firm bullish control.
GBP/USD holds medium-term bullish bias above 1.3600
The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.
USD/JPY drops back below 157.00 on Japan's verbal intervention
USD/JPY has come under moderate selling pressure below 157.00 in the Asian session on Monday. The Japanese Yen lost ground to near 157.70 following Japan’s ruling Liberal Democratic Party's outright majority win in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi. However, JPY buyers jumped back and dragged the pair southward on FX verbal intervention by Japan’s Finance Minister Katayama.
Editors’ Picks
EUR/USD hovers around nine-day EMA above 1.1800
EUR/USD remains in the positive territory after registering modest gains in the previous session, trading around 1.1820 during the Asian hours on Monday. The 14-day Relative Strength Index momentum indicator at 54 is edging higher, signaling improving momentum. RSI near mid-50s keeps momentum balanced. A sustained push above 60 would firm bullish control.
Gold sticks to gains above $5,000 as China's buying and Fed rate-cut bets drive demand
Gold surges past the $5,000 psychological mark during the Asian session on Monday in reaction to the weekend data, showing that the People's Bank of China extended its buying spree for a 15th month in January. Moreover, dovish US Federal Reserve expectations and concerns about the central bank's independence drag the US Dollar lower for the second straight day, providing an additional boost to the non-yielding yellow metal.
GBP/USD holds medium-term bullish bias above 1.3600
The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.
Bitcoin, Ethereum and Ripple consolidate after massive sell-off
Bitcoin, Ethereum, and Ripple prices consolidated on Monday after correcting by nearly 9%, 8%, and 10% in the previous week, respectively. BTC is hovering around $70,000, while ETH and XRP are facing rejection at key levels.
Weekly column: Saturn-Neptune and the end of the Dollar’s 15-year bull cycle
Tariffs are not only inflationary for a nation but also risk undermining the trust and credibility that go hand in hand with the responsibility of being the leading nation in the free world and controlling the world’s reserve currency.
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