Join Larry McMillan as he discusses the current state of the stock market on June 27th, 2022.
The broad market made new lows for 2022 a week ago. That reaffirms the pattern of lower highs and lower lows on the $SPX chart, meaning that the bear market is still intact. There should some support at last week's lows, near 3650. Beyond that, one has to go to a longer-term chart to find support: 3500 and then 3200.
At the beginning of 1973, the Dow (no one paid much attention to $SPX back then) made a new all-time high, trading up to 1067. The Barron’s Roundtable, a survey of top money managers and brokerage firm analysts, was published at the beginning of 1973 under the (now infamous) headline, “Not A Bear Among Them.” They were all bullish. President Nixon declared that the Vietnam War was over (although it didn’t wind down completely until 1975). However, stocks had a mind of their own (then, and now), and the Dow began to immediately decline.
I was saddened to hear that James Dines has died. I first heard of him in 1972, as I was beginning to trade in my own account. Due to some previous losses, I had given up on fundamental analysis; it was useless as a predictor of short-term moves (and maybe even long-term ones). In addition, I realized that the mainstream analysts of the brokerage firms were not putting out any useful information.
Okay, there are new products that are not exactly the return of those two very popular ETN’s representing volatility trading (TVIX was double the price/speed of $VIX, and XIV was the inverse of $VIX), but two new ETF’s are attempting to do the same thing.
A week ago, it appeared that $SPX had a chance to challenge its old highs. But subsequently selling has dashed those hopes at least temporarily, and now the question is whether support near 4420 will hold. A move above 4637 (last week's highs) would justify a bullish stance, while a move below 4420 would justify a bearish stance.
In the past, we have occasionally talked about hard to borrow stocks, and how that affects option prices. When market makers and others cannot borrow stock, then the “normal” option arbitrage relation falls apart. Normally, the following equation holds true (modulo dividends and carrying charges):
Stock price = Strike Price + Call Price – Put Price (where put and call have the same terms)
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.
Most people don’t realize that the Crash of 1929 and the Crash of 1987 both occurred exactly 55 calendar days after the stock market had topped. All prices in this article are closing prices on the day being referenced.
1929: the peak in the Dow was reached on September 3rd, when it closed at 381.17. 55 calendar days after September 3rd was (Monday) October 28th. That was the exact date of the Crash of 1929, with the Dow down 40.58 points, or 13.5%.
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.
