It’s a (Bearish) Bull Market!
Something technically significant happened to the U.S. stock market yesterday. The benchmark S&P 500 Index hit its highest price since 7th November, completing a 20% rise in price from its December low. A 20% increase in value from a low is a major and traditional indicator of a transition to a bull market, so the bear market which began at September’s all-time high finally comes to an end a little more than six months later. By another commonly used indicator, the U.S. stock market has already secured a transition from bearish to bullish: the price is above the 200-day moving average too. However, it is interesting to note that the 50-day moving average is still below the 200-day moving average, so the bearish “death cross” which occurred on 6th December is still in force.
It is interesting that this significant level just above 2815 is also confluent with three major swing highs / tops which we saw form between October and December. The price will look much more bullish, technically, if it can get established and trade comfortably above 2817. This means that the wide stock market is at a “pivotal point”, so if it continues to sell off from here, we may be seeing the start of a renewed bearishness. Another interesting feature is that the narrower Dow Jones Industrial Average of the thirty largest stocks, which has been performing better than the S&P 500 Index over recent weeks, has also failed to break above a key resistance level at 26,250.
There are two assets which tend to be positively correlated with the U.S. stock market which are also stalling at or close to resistance levels: the USD/JPY currency pair and Crude Oil priced in U.S. Dollars. If Crude Oil breaks above the psychological level of $57.50, or the USD/JPY get above 112.65, these could be leading indicators for a significant bullish breakout by U.S. stocks.