Taking a step again and taking a look at vital reference factors and percentages helps us grasp the place the inventory market is and the place it is doubtlessly going.
Specializing in the small-cap index, the Russell 2000 (IWM) has damaged its 200-Week shifting common at $176.13. The final time IWM was underneath its 200-WMA was in October of 2020. The latest breakdown is main many to ask “how a lot additional can the inventory market break down?” Whereas that query can’t be answered with certainty, we will search for long-term help areas and common market drawdowns to provide us clues on what’s going to occur subsequent.
To get straight to the purpose, let us take a look at the above chart. IWM is presently sitting on help proper earlier than the pandemic crash at $170.6. This value space wants to carry if IWM needs to face its floor.
It must be famous that the previous 15 bear markets had a mean drawdown of -30% utilizing the S&P 500. Proper now, the S&P 500 (SPY) is just down -17%, displaying it has room to interrupt decrease based mostly on earlier bear markets. Moreover, IWM is down about -30% from its all-time excessive, whereas the Nasdaq 100 is down -28%. This locations traders in a worrying spot because the market fundamentals do not look too vibrant.
Inflation is at a 40-year excessive and geopolitical stress from the Ukraine battle continues. Moreover, China’s latest surge of COVID provides strain on provide chain points. Having mentioned that, we have to search for the foremost indices to seek out help at their present value areas. Particularly within the IWM, because it has the most effective technical help from the pre-pandemic breakdown.
If the inventory market can not rally at its present value space, look ahead to the downward pattern to proceed because the SPY heads nearer to its common -30% bear market breakdown. On the brilliant facet, of the 15 bear markets, 5 ended after a -19% transfer decrease.
Observe Mish on Twitter @marketminute for inventory picks and extra. Observe Mish on Instagram (mishschneider) for day by day morning movies. To see up to date media clips, click on right here.
Assistant Director of Buying and selling Analysis and Training
Mish Schneider serves as Director of Buying and selling Training at MarketGauge.com. For practically 20 years, MarketGauge.com has offered monetary info and training to hundreds of people, in addition to to massive monetary establishments and publications comparable to Barron’s, Constancy, ILX Methods, Thomson Reuters and Financial institution of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of many prime 50 monetary individuals to comply with on Twitter. In 2018, Mish was the winner of the Prime Inventory Choose of the yr for RealVision.