Tuesday, January 19, 2016

The U.S. Stock Market’s Fate Hangs On This Critical Number......

The U.S. Stock Market's Fate Hangs On This Critical Number

The U.S. stock market faces a crucial test  this week.

After the worst 10-day start of a calendar year ever, the major stock market averages are on the cusp of the first real bear market since the financial crisis.

Bullish and bearish technicians agree on one make-or-break number as the threshold that will determine whether this latest correction will become a bear market, generally defined as a 20% decline from a previous peak.

What's the number? 

The S&P 500 Index's Aug. 25 correction closing low of 1867.61. That, technicians agree, is the support level the market must hold for the bull to continue. It's the market's answer to Powerball, though this time it's winner take all.

The break will occur if and when the index falls below its August low of 1,867.

Almost everything is in place for the third cyclical bear market of the 21st century.

The S&P below 1,875-1,925 spells 'bear market' and above 2,135 … spells 'continuation of the bull market.' 

That support level is about 13% below the S&P 500's all-time closing high of 2130.82 on May 21. Since then, the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite index have had a couple of sell-offs and rallies but have been unable to match their previous highs. That may turn out to be a critical failure for the bulls.

… The bull needs to re-assert itself soon in a visible up trend. The S&P 500 recovered well from its August/September lows, but … the inability of bullish forces to put together a concerted rally and break out above this recovery high [of 2,116 in November] remains a big concern.

In fact, the major averages have been in technical down trends for months.

The percent of New York Stock Exchange stocks trading above their 200-day moving averages has been less than 50% since June … and the NYSE composite index itself has been in decline since May, telling us that the average stock already is in a bear market. 

According to some technicians, the next major support level below us would be the previous S&P 500 all-time high of 1,575, which it first surpassed in March 2013. That would mark a 26% decline from its June 2015 all-time high.

The combination of a struggling global economy, weak earnings, a strong dollar and higher interest rates should be enough to push the markets into the next bear.

So watch that magic number of 1,867 in the coming weeks; it may tell you all you need to know about where the market is going in 2016.

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