When we discuss bear markets, we usually think of the major market indexes, the S&P 500 Index in particular; however, any price index -- market sector or even an individual stock -- can be experiencing a bear market, even in the midst of a broad-based bull market like we are experiencing now. In my opinion, an objective definition of a bear market is when the 50EMA of price is below the 200EMA (commonly known as the "Death Cross"). This week long bonds had a 50/200 downside crossover, which confirms that, yes, the price drop we see is indeed as bad as it looks. Long bonds are in a bear market.
The new Real Estate SPDR (XLRE) that was spun off from the Financial SPDR (XLF) recently had a 50/200 downside cross. I found this one particularly interesting because the spinoff seemed to me to have been done in anticipation of the deflating of our latest real estate bubble.
Of the ten S&P 500 sectors, two are in bear markets -- XLRE (above) and XLV (Health Care). There are also two of the 10 that are headed for negative crossovers: Consumer Staples (XLP) and . . .
. . . Utilities (XLU). Assuming that these two crossovers actually happen, forty percent of the ten S&P 500 sectors will be in bear markets.
To create our vast array of market and sector indicators, DecisionPoint tracks 564 large-cap stocks that compose the S&P 500, S&P 100, Nasdaq 100, and Dow 65 indexes. Of that group of stocks nearly a third (31%) are currently in bear markets.
CONCLUSION: The broad market indexes are generally experiencing strong bull markets and making all-time highs, but with a little effort we can see significant erosion below the surface. One reason that cap-weighted indexes can push higher while many of their components are retreating is that the larger-cap stocks carry the index. This type of situation can persist for a long time, but we need to remember that it is a lot like thin ice. Dangerous.
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Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Carl
