Is the Bull Run Over?
There is no doubt that the US stock markets have had a fantastic run since they hit their lows back in 2008 and 2009 after the financial banking crisis.
The Dow Jones has gone from 6500 to around 27000 earlier this year, and the S&P 500 has posted similar gains, rising from around 670 to around 2940.
Indeed this has helped global stock markets soar higher in recent years, which has resulted in many active and passive investors growing their portfolios quite substantially.
However yesterday’s big sell off, triggered in part by the threat of rapidly rising interest rates, could signal that the bull run is finally over.
Yesterday’s Sell-Off
The fact is that many US companies had become seriously overvalued due to continued share price rises, and this was even more true for many of the top technology companies.
So my own personal view is that yesterday’s sell-off, which saw 800+ points wiped off the Dow Jones, has been a long time coming, and is actually quite healthy in many respects, even if it has negatively affected my own portfolio of UK stocks.
Now we just need to wait and see if this is a short-term correction or the start of a long-term correction, but using the 200-day moving averages as a guide, the future is looking ominous.
200-Day Moving Averages
The big price rises had seen the price of the major US stock indices continue to trade far higher than the 200-day moving average of these indices, but yesterday’s falls have already seen the price come back to trade close to this key support level in both instances.
Here is the daily chart of the Dow Jones…
….and here is the daily chart of the S&P 500…
As you can see, with the futures once again trading lower today, the price has actually dipped below the 200-day exponential moving average on the S&P 500 at the time of writing.
Future Price Direction
A fall below the 200-day moving average isn’t enough to signal the start of a new bear market, so it is still far too early to call.
However if the price continues to trade below this critical level for the next few weeks, the shorter-term EMA (50) will eventually cross below the EMA (200), triggering a death cross, and this would be a much stronger signal that we are seeing the start of a new bear market.
Therefore there is the potential for the Dow Jones to test the previous low of 2018 – 23112 – and for the S&P 500 to test the previous low of 2553 at the very least.
Whatever happens, these are interesting times whether you are a trader or investor, and it is going to be very interesting to see where the price of these major US indices go from here.
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