 |
In last week’s Money and Markets column, I told you about some stock market indicators to watch.
Since then, the market has fallen even further. So today I want to update you on what’s happening now, and what I think about the additional weakness in stocks.
The main question we need to answer …
Is This the Start of a New Bear Market
Or Just a Typical Correction?
First, let’s define our terms. A typical stock market correction delivers a 10 percent loss, give or take a few percentage points. Meanwhile, a bear market is generally a loss of at least 20 percent.
| Internal Sponsorship |
|
Nine Shocking New Next week, we are set to help you ramp up your profit potential and reduce your risk of loss as never before as we present our online video briefing: Nine Shocking New Predictions for 2010-2012. We’ll reveal how you can know which asset classes offer you the greatest profit potential, how to build a rapid growth portfolio like a top investment pro and the ideal diversified growth portfolio for 2010. |
At Friday’s low, the S&P 500 was down 7.9 percent from its January high, and the Nasdaq Composite was down 8.4 percent. That’s already close enough to make this correction a typical one. And the additional weakness on Monday put the market even closer to the standard correction.
During an ideal correction, prices come down to the rising 200-day moving average. And as you can see in the chart below, the S&P 500 is nearing major support at the rising 200-day moving average with momentum already oversold.
Source: www. decisionpoint.com
This important support line is currently at 1,019 for the S&P and 2,023 for the Nasdaq. So nothing to get worried about there yet, either.
Source: www. decisionpoint.com
What’s more, volume picked up considerably on Thursday and Friday, with Thursday’s down volume representing 97.3 percent of total volume. These are clear signs of panic.
Momentum indicators also fell to oversold levels. And market breadth was very lopsided, with breadth-based indicators flashing deeply oversold levels.
Finally, sentiment indicators show that a fair amount of angst has returned to Wall Street:
- In January, the American Association of Individual Investors showed 48 percent bulls and only 22 percent bears.
- As of February 4 this picture has totally changed, bullish sentiment is down to 29 percent and bears are up to 43 percent.
- Plus, this survey was taken before Thursday’s and Friday’s market action.
 |
| The recent market downturn is signaling a correction, not a new bear market |
Other sentiment indicators are confirming these bearish readings. For instance, at 1.21, Friday’s CBOE put-call ratio was high.
All of this tells me that we’re witnessing a correction, not the beginning of a new bear market.
Plus, if this were the beginning of a bear market, we should be seeing at least some deterioration in leading economic and leading stock market indicators. So far that has not been the case.
Indeed, all of my short-term indicators are telling me that we are approaching the end of this stock market correction. Although we may not be there yet, we are close.
Best wishes,
Claus
About Money and Markets
For more information and archived issues, visit http://legacy.weissinc.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Marci Campbell, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://legacy.weissinc.com.
From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.
|
© 2010 by Weiss Research, Inc. All rights reserved. |
15430 Endeavour Drive, Jupiter, FL 33478 |
