Taking a step again and taking a look at essential 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 current 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 present us clues on what’s going to occur subsequent.
To get straight to the purpose, let’s take a look at the above chart. IWM is at present sitting on help proper earlier than the pandemic crash at $170.6. This value space wants to carry if IWM desires to face its floor.
It needs to be famous that the previous 15 bear markets had a median drawdown of -30% utilizing the S&P 500. Proper now, the S&P 500 (SPY) is barely down -17%, exhibiting 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 brilliant.
Inflation is at a 40-year excessive and geopolitical stress from the Ukraine battle continues. Moreover, China’s current surge of COVID provides stress on provide chain points. Having mentioned that, we have to search for the key indices to search out help at their present value areas. Particularly within the IWM, because it has the very best 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.
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Assistant Director of Buying and selling Analysis and Training
Mish Schneider serves as Director of Buying and selling Training at MarketGauge.com. For almost 20 years, MarketGauge.com has offered monetary data and schooling to 1000’s of people, in addition to to giant monetary establishments and publications similar to Barron’s, Constancy, ILX Techniques, Thomson Reuters and Financial institution of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of many high 50 monetary folks to comply with on Twitter. In 2018, Mish was the winner of the Prime Inventory Decide of the yr for RealVision.