The oversold rally that began in mid-March continued strongly through March 29th. That day, $SPX gapped up over double resistance at 4600, and showed strong internals. But then, in a somewhat diabolical way, $SPX turned south again, showing terrible internals and plunged sharply back below 4600 as the first quarter of 2022 came to a close. If that was a false upside breakout, it was one of the bear market's best tricks.
The market has staged a ferocious oversold rally. Bear market rallies always look great until they fail. This rally has now reached the upper side of the downtrend channel (blue lines in Figure 1). Of course, it is always possible that this is the real thing i.e., a market bottom -- and not an oversold rally. In my opinion, the difference- maker will be if $SPX can close above 4600.
Stocks continue to struggle. The downtrend of $SPX is quite evident in Figure 1, and as long as that Index is in a downtrend, a "core" bearish position can be maintained. $SPX made a new closing low this week, as it probed down towards 4100 once again. The general area of 4100 4200 still represents near-term support. Below that, the next support area (red horizontal line on chart) is at the highs of about a year ago, just below 4000.
The chart of $SPX is bearish, with lower highs and lower lows. That is the most important thing to take away from Figure 1. After spiking sharply lower a week ago, $SPX has engineered another oversold rally. In a bear market, those are often swift but usually die out at or just above the declining 20-day Moving Average. It would take a clear breakout over the resistance at 4600 in order to re-establish a bullish trend for the $SPX chart.
The media seems to think that everything that is wrong with the market and the economy is due to the military conflict, but that is not the case. $SPX is in a bear market and will continue to be as long as the downtrend exists (see the blue line in Figure 1). However, the action on February 24th exacerbated an already oversold condition, and now another oversold rally seems to be taking place.
The tensions regarding a potential Russian armed invasion of Ukraine have caused some wider than usual swings in the market, but the underlying causes of the bearish action on the stock market are far greater than this potential conflict.
$SPX remains in a downtrend (see blue line on the chart in Figure 1), and that is what makes the chart bearish. The fact that the various short-term moving averages and the "modified Bollinger Bands" are all sloping downwards only adds to the bearishness.
The oversold conditions that had existed at the end of January led to a strong oversold rally. $SPX gained over 350 points in just under two weeks. But that rally failed as $SPX reached its declining 20- day Moving Average, and the Index is now on the defensive again. The downtrend line on the chart in Figure 1, and the declining trend lines ("modified Bollinger Bands" and 20-day Moving Average), are indicative of a bearish trend in $SPX.
The broad stock market had a very strong rally over the 4-day period, extending from January 28th through February 2nd. The oversold conditions that existed just prior to that were massive and part of the rally was a reaction to those conditions. In addition, there is a verified positive seasonality to the end of January, as mutual funds and other large institutions put cash to work. Both of those conditions aided the rally greatly, but they are no longer in effect. For now, the demarcation line between bear market and a possible reversion back to a bull market is the negative trendline show in blue in Figure 1.
$SPX continues to be the best relative performer of the major indices. $NDX (QQQ) has already broken its lows of last September. Meanwhile, the Dow ($DJX) probed the lows of last spring. By far the worst performer, though, is the Russell 2000 ($RUT; IWM), which has essentially wiped out all of the gains of 2021. That is illustrative of what the "average" stock has been doing. I still don't think the media really gets that.
$SPX has support in the 4200-4300 area.
