Yesterday, the DOW fell over 630 points and the S&P 500 and Nasdaq took a hit too after the market spent over a week drifting in a narrow range doing nothing. That drifting action happened after a rally off of the most recent May lows that brought in a lot of bottom callers and hopes of big gains to come. That excitement turned into sleepy times, though, as the market then seemed to do nothing.
What it did was get overbought and go sideways. The daily stochastics went above 80 to give an overbought reading. If they go below 80, which another down day will do for them, then they will give a sell signal. You can see this indicator at the top of this chart.
If you look you can see that the stochastics last gave a sell signal in April and then did so in February and January.
In bull markets buy signals make for great buying opportunities, but in bear markets they become serious sell warnings.
In bear markets sectors that lag the S&P 500 tend to fall the most on a decline.
The Nasdaq 100 has been lagging the S&P 500 all year and already gave a sell signal Thursday.
Big tech giant Apple gave a sell signal yesterday.
And so did AMZN.
Of course, these are not the only stocks that just gave sell signals yesterday.
Now is the time to take money off the table if you have not already done so this year, in my opinion.
Or put on some hedges!
But, selling things you already have a loss on and putting the loss on your books for tax losses to use later makes a lot of sense to me.
Sure, the market could go up Friday or Monday and does tend to gyrate wildly around Federal Reserve meetings and we got one on tap next week, but the underlying trend is bearish and sell signals need to be taken seriously.
I define a bear market as one in which the 150 and 200-day moving averages are trending down and acting as resistance.
In bull markets they do the opposite.
This last rally was a weak one as the S&P 500 couldn’t rally enough to close above its 50-day moving average!
I don’t care about the predictions and claims of people like Cathie Wood, this is what the big trend on the chart is and until it changes I’m going to take the bear trend seriously.
We had two bear market rallies that acted as bull traps this year.
They were one in February and one that ended in March
This end of May rally now looks like the third trap being sprung on stock market bulls.
This is a tough market there is no doubt about that.