Source: Zhitong Finance APP
Zhitong Finance has noticed that the technical indicators used by analysts to measure the health of the US stock market have turned sharply, which has further aggravated the market’s concern that the S&P 500 index, the benchmark of the US stock market, may revisit the staged low point when the market plunged in mid-June.
The benchmark S&P 500 index has fallen by 7% since mid-August, after a sharp rebound in the summer. Analysts generally believe that this round of decline is mainly due to the market’s expectation that the Fed will raise interest rates to a level higher than previously expected, and "at all costs" will lower the consumer price index (CPI) from a 40-year high, and it is difficult for the market to expect the Fed’s monetary policy to turn loose in the future.
Technical indicators collectively issued an alarm.
The recent weakening of the Standard & Poor’s 500 Index gives analysts who follow the technical phenomena of the market (such as breadth, trends and trading patterns) to provide the basis for investment decision-making more reasons to be cautious. Although just a few weeks ago, these indicators hinted that there would be optimistic prospects, they now show a completely different picture, which makes investors worry that the selling in the US stock market this year may not be over yet.
John Kolovos, chief technical strategist of Macro Risk Advisors, said: "In view of the severity of the US stock market in the past three weeks, I have to downgrade the market from a technical level." "At this critical moment, the possibility of the market rebounding from the bottom in June has been reduced, which may only be slightly higher than the possibility of flipping a coin to guess the pros and cons."
"Market breadth"-generally speaking, it is one of the important technical indicators focused by investors, which shows whether a large number of stocks are rising or falling simultaneously. Positive "market breadth", that is, the number of stocks rising is more than the number of stocks falling, shows that investors who are bullish on the stock market are full of confidence.
Recently, "market breadth" has begun to send out disturbing signals. The proportion of stocks traded above the 50-day moving average of the Russell 3000 index has dropped from about 86% in mid-August to about 30%.
"We want to see this indicator stabilize at the current level," Kolovos said. "We really don’t want to see it much lower than the 25% level."
At the same time, statistics from Thrasher Analytics show that the 15-day moving average statistical indicator (another indicator to measure the market breadth) of the S&P 500 index stocks hit a three-month low percentage has climbed from slightly above zero in mid-August to about 10%. At the stage low in June, the ratio was about 60%.
Andrew Thrasher, the founder of the company, said: "We are watching whether the bearish range will continue to expand." "If we see the ever-expanding ratio of record lows, it will bring huge downward pressure on the index."
In addition, as shown in the above figure, the S&P 500 index has been hovering below the 200-day moving average for five consecutive months, the longest duration since May 2009.
According to the statistics of BofA Global Research, historically, the return rate of the index (S&P 500) was about -3.56% in September, which was lower than the 200-day moving average of the mid-term election year in the United States (the mid-term election in 2022 will be held in November local time). The index has risen by about 1% so far this month.
Generally speaking, technology stocks have been hit particularly hard in recent weeks. The Nasdaq Composite Index, which is dominated by technology stocks, has fallen by about 10% since mid-August. Some technical observers believe that the index will encounter more challenges in the future. Recently, the index has formed a trend reversal from multi-to-empty, which is called "head and shoulders top" by technical analysts.
As the above chart shows, earlier this year, the index has broken through the so-called "neckline" area, which is a bearish trend. Brian LaRose, an analyst at ICAP, said that if it falls below the recent low of about 10,500 points, the Nasdaq may go down to the low level of 8,800 points. The index closed at 11,862 points on Thursday.
The trend of US bond yield is very critical!
Of course, technical indicators may improve or deteriorate, because the market may fluctuate greatly. For example, investors often adjust their expectations according to factors such as the trend of US bond yields. US bond yields are driven by monetary policy expectations and are closely related to the performance of US stocks this year.
As the above chart shows, since this year, the yield of US bonds has shown a very strong negative correlation with US stocks. The benchmark 10-year US bond yield hit a stage high of nearly 3.5% on June 14th, and then the S&P 500 index hit a recent low.
Although U.S. stocks briefly rebounded during the summer decline in yield, the recent rebound in yield was accompanied by the market falling into a downturn again since mid-August, and the yield of 10-year U.S. bonds is currently near the highest level since June 16.
At the same time, excluding inflation, the US 10-year treasury inflation-protected securities yield, also known as the real rate of return, which is regarded as the key driver of risky asset prices, even reached 0.88% on Thursday, close to the highest level since 2019. Since then, it has fallen back to 0.84%, but it is still close to a three-month high.
Mark Newton, a well-known technical strategist from Fundstrat, said: "The trend of US bond yields may have an important impact on the US stock market in the coming months. My personal opinion is that the yield has begun to approach the peak, so it is possible to continue to rise. "