In today's subscriber-only Diamond Mine trading room, I was asked why Carl and I think we are on the first leg of a bear market. I'm sure we're not alone in our bearish stance, but I have a few charts to provide our evidence that this is indeed the beginning of a bear market. To be fair, we hope we are wrong.
Let's start with the weekly chart of the SPY. Price has been traveling in a bearish rising wedge all year. This week, we saw a breach of the rising trend. The 43-week EMA is available as support, but, with the weekly PMO accelerating lower and not oversold, along with the weekly RSI hitting negative territory and not oversold, we don't think it will hold.
Our intermediate-term indicators are only sitting in neutral territory. They aren't even close to oversold territory. We don't even have the ITVM in negative territory yet and the ITBM just dropped below zero today. A little less than one-quarter of the SPX have PMO crossover BUY signals. While that is an anemic number, we saw it move much lower even on the December low.
Let's look at our PMO Analysis chart. The short-term %PMOs Rising is at 5% and is certainly oversold. Before I move on, let that number sink in... only 5% of the SPX have rising momentum. The intermediate-term %PMO BUY Signals is dropping quickly, but isn't oversold yet. The %Stocks with a PMO greater than zero is more than 50%, definitely not oversold. Even during the September slide, these numbers were much lower. The problem is that even if they reach oversold territory, we can see that, in the bear market, they hovered at oversold levels for over a month.
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Finally I bring you to my last chart, Bias Assessment. The Silver Cross Index (SCI) measures how many stocks have a 20-day EMA > 50-day EMA, currently a neutral-to-bearish 58%. The problem is that there are far fewer stocks with price > 20/50-day EMAs. This means the SCI will continue lower, giving us a short-term bearish bias. Notice those participation numbers, while oversold, aren't THAT oversold when you compare it to the 2020 bear market or even the November low!
The intermediate-term bias is bearish given the SCI is falling and below 70%. The Golden Cross Index (GCI) measures how many stocks have "golden crosses" or a 50-day EMA > 200-day EMA. The long-term bias is also bearish, given there are fewer stocks > 200-day EMAs compared to the GCI.
The SCI and GCI are NOT oversold.
Conclusion: Indicators are just not that oversold right now. In many cases, they aren't even as oversold as at the end of the September correction or the November pullback. Sorry to say, this is not over yet.
Technical Analysis is a windsock, not a crystal ball.
--Erin Swenlin
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Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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