Stocks in panic mode – Nearing a bear market as S&P500 retraces to 23.6% Fib of the 11-year bull ride
|- American stock indices try to fall in an organized way after two halts due to excessive losses.
- The technical puzzle begins to square with a long-term scenario, post-bull market 2009-2020.
- Any order should be placed with very tight stops and a decision to execute them.
The time has come for the bears to adjust the scoreboard with the perma-bull market of the last 11 years.
The reason behind this fall is not the subject of this article, as we will rather highlight some technical aspects which indicate that what we are seeing this time is different from the falls of 2016 and 2018.
Look at this S&P500 weekly chart, which can shed some light on the situation:
Using the Fibonacci retracement tool, we see that this first bearish move has taken the price straight down to the 23.6% retracement level of the entire rally since 2009. The fact that the first major downturn has stopped here gives validity to the big scenario. The next levels of decline are located at 2350 (38.2% Fib retracement), then at 2029 (50%) and finally at 1709 (61.8%).
In the DMI indicator, we see how bears have reached a level only surpassed during the fall of Lehman Brothers, and we have gotten really close to that point. On the positive side, we see that bulls are still at "normal" levels, well above the levels expected for the current fear level.
According to traditional theories, bear markets last between 1/4 and 1/3 of the duration of the previous bull market. If this happens this time, we can be talking about two-to-three years of a bearish market.
In any case, today, the anti-crash measures approved during the last stock market crisis have shot up, paralyzing the S&P500 during overnight trading (-5%) and a few minutes after opening (-7%).
It is essential to give yourself time before you go looking for bargains. In panicked markets, selling irrationality can outweigh the buying irrationality by some degrees of magnitude.
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