Yesterday was a day when the markets started looking like they are ready for a new leg down. Let's take a look at what the charts are saying.
The Russell 2000 fell again yesterday and confirms it is unable to move up and penetrate the resistance embodied by its 200-day moving average.
Yesterday the S&P 500 fell below its 200-day MA for the second time in as many weeks. It is now down about 9.4% from its peak and has gone negative for the year. Back in the beginning of this month, the 20-day MA made a bearish cross-over below its 50-day MA, and the average has been stuck below both of these chart lines ever since.
The Dow also plunged yesterday and ended up sitting right at its 200-day MA. A dismal forecast is developing, with its 20-day MA making a bearish cross-over below its 50-day MA, it could be moving down further. As of yesterday, the Dow is down about 9% from its peak though it is still positive for the year.
That brings us to the NASDAQ. On the basis of strength in technology stocks, the NASDAQ has been under pressure but was not falling as rapidly as the other averages until lately. Yesterday the NASDAQ fell below its 200-day MA for the first time this year and is down about 9% from its peak though it too is still positive for the year.
To sum up, we have all the major averages at or below their 200-day moving averages, a level where many analysts and investors feel the trend becomes bearish. Two of the four are now negative year-to-date. We have just about fulfilled the requirements for a full-fledged correction.
It has been my feeling that we would get to about this level and the market would spend some time backing and filling and then begin to move up again. Now I'm beginning to think we may overshoot and move lower still. The way the market used to move up on every announcement of a new merger or buy-out, the market now seems to move down with every revelation of a hedge fund in trouble or a mortgage lending institution unable to continue in business.
One average after another has rolled over; it's like watching dominoes falling.