Bulls Lack of Power
If we compare the highest levels that the indexes reached around Nov/2021, versus the lowest levels at which they declined around Feb-March 2022, some of them got to Bear Market Territory. Updating the same data with today's close price, most of those indexes are around the same levels. The Nasdaq Composite and the Russell 2000 are already in confirmed Bear Market territory. Reviewing the table in the screenshot below, the large-cap related indexes are the ones holding better (i.e. S&P 500 and DJI).
The bad news is that the New Highs and New Lows numbers (NH-NL) in all the timeframes aren't improving, maybe they stopped getting to lower levels, but with oversold conditions the best they are doing is just stop the decline, I was expecting maybe a one or two day reaction rally. A reaction rally doesn't mean necessarily a change in direction, is just the normal cycle of ups and downs that could be powered by people covering shorts, trying to pick a bottom, etc.
Taking the latest numbers from today (row 9,623 in the screenshot below) and using the fastest timeframe which is the Monthly one (columns G, H, I), it's easy to imagine the amount of selling pressure when 2,280 different tickers are making a new low for the last month, while only 152 are making a new high in the same timeframe.
The weakness is also evident in the daily S&P 500 chart, the stocks actually tried to rally at the beginning of the session but the index closed at its lows. In the chart, I have highlighted the highest level of the index (green dotted arrow), the previous lowest level (red dotted arrow) and today's closing price (orange dotted arrow). The 4,191 weekly support is still holding, it will be very significant if the support breaks. As I mentioned in yesterday's article, when the S&P 500 tested the support in the past, it at least had a reaction rally for a couple of days. Additionally the index is currently at oversold conditions (-3 Keltner Channel), so it's not crazy to think about a rally, even if it lasts just a day or two.
I can't get out of my head the idea that maybe this Correction still has a lot of fuel on it, enough to make it a real Bear Market in all the indexes. Zooming out to the Monthly chart of the S&P 500 we are still inside the +1 Keltner Channel (KC). If we take previous crisis/corrections, the index in the same monthly timeframe has been able to decline to the -3 KC.
If the S&P 500 doesn't rally at least to 4,500 I'm happy to continue watching the action from the sidelines. This is a time to be extra careful, I'm mostly in cash now, doing a few test trades from time to time using a trading size smaller than normal. The long trades aren't working very well, most aren't working at all.