The US Stock Market Is Now In Stage Three Headed For A Bear Market

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I’m now taking a cautious approach on the markets and think this is the time to REDUCE risk with the aim of lowering volatility in my accounts. That can mean doing some selling to increase a cash position or taking hedges.

In 2021, in the first quarter, I started to say that I thought the market was heading for a bear market, but I could not predict if it would happen in a few weeks or in early 2022 - and as a result I was going to do very little trading at all for the rest of that year.

I actually moved a lot of money into short-term CD’s getting 5%+ interest that year.

I was thankful I was no longer running a pay trading service at the time, because it would have been very hard for me to say all of this - and indeed many people got angry at me.

And in 2022 the market did indeed go into a bear market.

The warning signs I saw were the simple start of a deterioration of the internals of the stock market, with the advance/decline line turning down - it went down for the rest of that year - and the percentage of stocks above their 200-day moving average doing the same thing. The S&P 500 continued higher into the end of the year, but the Russell 2000 peaked and did nothing.

This peak coincided with the Gamestop mania that hit the news cycle for a few weeks, which you could say represented a manic climax in the buying and trading activity of a generation of people who got into trading, with such things as the Robinhood app in 2020.

Most of these Robinhood traders wiped themselves out and vanished from the markets to never come back.

I guess some went into Sports gambling as their has been a subsequent boom since then, or crypto coins. There is a group of people that chase the flashy trend of the moment, buying near the peaks, and wiping out, only to get some more money together to try to do the same thing. The crypto gurus who promised that Bitcoin would go to one million were speaking to them.

One day they will get into metals.

Now the internals are starting to decline like they did then.

Here is the advance/decline line, which is tally of the number of stocks going up versus down inside the S&P 500.