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Stock Market at a Crossroad

CAMS Weekly View from the Corner – Week ending 8/19/2022

August 22, 2022

No trend goes up or down in a straight line in relation to markets. Rather, there is a series of advances and pullbacks that unfold within the duration of a trend.

Collective market participants are constantly assessing their forward looking view by processing recent inputs as they are focused on pricing assets today based on what they see, or think they see, weeks and months down the timeline.

Through their market actions of buying and selling there is a collective conclusion left in the wake of their market operations. Through this process a trend can be identified in light of the consistent battle of bidding up share prices only to then retreat them in a more meaningful way or vice versa.

It is the overall trend that is most important not the easily focused on noise of market gyrations.

In our current stock market (thus far year 2022) the above has unfolded while leaving a down trending market in its wake. While there is always a drumbeat of market opinions given with a wealth of views and angles supporting the various opinions it is the trend that is rock solid accurate and unequivocal.

The trend is the by-product of the collective buy/sell decisions by participants which is where the proverbial rubber truly hits the road because it is real capital being placed at risk relative to the forward views they hold.

Will the 2022 Trend Continue?

Over the previous year we have intermittently offered the prospect of a true bear market coming our way.

At this stage, if we are in a true bear market, it seemingly has already begun. A true bear market is our own phrase for a market that has down trending characteristics and an overall backdrop of difficulty not for weeks to months but rather for months to years.

History is filled with true bear markets so they are not an anomaly but rather show up consistently when a wide view of history is studied. Interestingly, with history telling her story such market environments show up when the masses think a true bear market storyline is nearly impossible.

We are now eight months into 2022 while our stock market has continued to hold its down trending characteristics – trading noise and relief rallies aside. This is getting a bit long in the tooth for some sort of brief pullback whereby stocks adjust for a few months only to then powerfully resume the upward bull market that had been in place previously.

With this time on trend now adding up to numerous months along with the pricing action of stocks in recent weeks we are at a crossroad for the stock market at large.

Will it continue to keep its established downtrend intact or is it ready to break through and to begin to do work in putting all this challenging market behavior behind itself? We do not have to surmise as collective market participants will tell us in coming weeks relative to how they navigate this crossroad that stands before them.

Click For Larger View:

Above is a multi-year chart of the S&P 500 Index as viewed through weekly bars.  This simply means that each bar in the chart represents one week of trading. 

We use weekly views in order to get a clearer look at what is going on with price action. Weekly charts take out the noise of daily trading. In addition, the close of a week and the message it sends is superior to a daily closing price.

By design the above is real simple and speaks to our topic for today’s edition. The black line depicts the established downtrend the stock market has been in for the entirety of 2022. With the price action in recent weeks we are again testing the trend line from underneath.

The significance of trend lines is the more attempts to break them that fail further identifies said trend as solid and secure. We are now approaching what can be considered the third contact with the trend.

If we are going to end this established downtrend it is at this point that we should see the S&P 500 price move above the black line and hold above it. To be detailed, this cannot be a mere head peek above the trend line but rather needs to move above it and hold above it.

If this can occur then we can begin to have a solid conversation on the end of the downtrend and begin to look at prospects for a return to the previous high levels. First though, the black line is the crossroad.

Will the stock market hold this downtrend line and continue to trade beneath it? If so, this will further established the validity of this downtrend. Conversely, if price action is able to get north of the trend line and stay above it then participants will have put an end to the downtrend.

Importantly, this would not guarantee a new uptrend has begun but rather would unequivocally offer the established downtrend has been ended. First things first right. That would be a very important statement from collective market participants if it were to occur.

Near-term weeks of pricing behavior will be crucial in its messaging around this established downtrend line.

I wish you well….

Ken Reinhart

Director, Market Research & Portfolio Analysis


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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