Just a correction from February 19, 2020 market plunge. Or was this the shortest bear market in U.S history? In a market downturn, it is easy to switch on the panic button and visualize your investment dropping and whipping out your retirement plans. But what is important is to understand what is happening.
Typically, a bear market is a long and sustained decline in the market where losses surpass 20% from the most recent high. From BullGap's market readings, the 35% correction drop that occurred in March did not break the overall market up-trend. There was a crash. Make no doubt about it. But it did not break the long-term bullish trend.
If we look at the screenshot below, we can see that the S&P 500 has just set a new record high for the week. Since February 19, 2020, the S&P 500 has surged back up over 50% from its March lows. The green dotted line above shows where the S&P 500 hit a closing high of 3,389 on Tuesday 8/18/2020.
Momentum
Though the S&P 500 and Nasdaq are churning higher, it is evident in the picture above that only a handful of stocks are moving the market higher. Right now, market breadth is declining. Less than 60% of stocks are above there 20-day moving average (DMA) and only 44% of stocks are above there 50 DMA. The top-5 stocks (AMZN, GOOG, FB, MSFT, and AAPL) by market capitalization are propelling the market price index higher. As discussed in our prior blogs, a strong market typically has a larger percentage of stocks participating above the 50 and 200 DMA. That is just not the case. The advance\decline reading is also at a low of .46.
Market Sentiment
The screenshot below shows some of the indexes that gauge market breadth and market sentiment. The number of stocks hitting their highs versus lows has been falling which indicates the weakness of the overall market rally.
Bullish Sentiment
Though market readings are indicating a slow down in the overall market momentum, investors are showing an exuberance toward the market. Fear of missing out (FOMO) has been in high gear for the past 4 weeks. Indexes such as Nasdaq are trading over a 2-standard deviation above the 200-DMA.
Market Readings
Looking at our daily market reading for last Friday 8/21/2020, we can see that the market moved higher for SPY and QQQ. The treasury market also had a slight rebound for the week. IWM (small caps), however, dropped with bearish signals showing for the daily and intraday charts. Interestingly enough, the tech-heavy ETFs such as SPY and QQQ were all up for reasons discussed in our Momentum section of this blog. Financials and energy were the biggest underperformers.
Conclusion
Looking at the daily readings from MogulUp, we can see a stark contrast between large-caps and small-caps. Small-caps broke the daily trend line this week and is headed back to the low 152 level. Large-cap however such as SPY is moving higher though the trend is beginning to weaken. Though the MACD crossed over last Thursday, the intra-day readings for SPY are quite bullish.
With the small-cap space market trending lower and the recent move to the treasury market, investors are probably interpreting the recent economic recovery as a slowing or bottoming and are placing their bets on larger companies.