Jeff’s Note: On Wednesday, thousands of folks joined my urgent briefing… if you missed it, it’s not too late to get in on my secret strategy for profiting off an imminent $4 trillion market “snap.”
And if you’re holding stocks right now, then you’ll want to hear how to position yourself correctly before this legally mandated event strikes. Failing to prepare could mean a missed opportunity to potentially double – or even triple – your money within the next 40 days.
That’s why I gave all attendees the name and ticker of three stocks I’m closely watching right now. To find out what they are, just click here to watch the free replay.
The bulls need a rally this month.
Otherwise, the bear could cause some serious damage in early 2023.
Let me explain…
On Tuesday, we looked at a couple of indicators that were in extremely overbought territory.
We suggested that condition could lead to some short-term trouble for stock market bulls. And the chart we’ll look at today suggests the bulls could have some longer-term trouble…
Below is the monthly chart of the S&P 500 plotted along with its 9- and 20-month exponential moving averages (EMA)…
This chart is simple…
If the S&P 500 is trading above its 20-month EMA (the blue line), then we’re in a long-term bull market. If the index is below the line, then the bear is in charge.
You can see how breaches of the line – in late 2000 and early 2008 (blue arrows) – led to significantly lower stock prices in later months.
You can also see there were several breaches of the line since 2008 that did NOT result in longer-term carnage. Indeed, the market recovered quickly from the declines in 2010, 2011, 2015, 2018, and 2020.
So, how do we know if the current breach of the line is going to play out like the bear markets of 2000 and 2008? Or is it going to be a milder version of a bear market like all those breaches since 2008?
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Well, just look at the 9-month EMA (red line)…
During all the milder declines since 2008, the 9-month EMA stayed above the 20-month EMA.
But when the 9-month EMA crossed below the 20-month EMA during the bear markets of 2000 and 2008, the declines accelerated.
The 9-month EMA finished October below the 20-month EMA. This “bearish cross” is a big cause for concern in the months ahead. It’s warning of an accelerated decline in the stock market to kick off 2023.
Unless… the market rallies hard enough in November to pull the 9-month EMA back above the 20-month EMA.
The two moving averages aren’t that far apart. Heck, we really can’t even see the bearish cross on the chart. So if the market can rally this month, then it could negate this bearish signal – at least for now.
Since this is a monthly chart, all that matters is how this picture looks at the end of November.
If the S&P 500 can finish the month above 4025 or so, then that should be enough to eliminate the bearish cross.
But if the bearish short-term action we’ve seen so far this month continues, then the chart above will look more like 2001 and 2008.
And we all know what happened back then.
Best regards and good trading,
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Jeff Clark
Reader Mailbag
In today’s mailbag, a new member shares his experience with Jeff Clark Alliance…
I joined Jeff Clark Alliance about two weeks ago to discover more educational content. What a wealth of knowledge! You make the topics easy to understand and immediately useful. I’m looking forward to utilizing the forex knowledge I’m learning.
– William Q.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].