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There was follow through to Tuesday’s last hour selling yesterday (Wednesday) with the S&P -1.30%, the NASDAQ -2.70% and the Russell -1.06%. The technical damage to various parts of the market is starting to accumulate.
Most importantly, the NASDAQ closed below 13,000 (12,998) for the first time since January 6, 2021. One look at a chart and it’s obvious that 13,000 is crucial support for the NASDAQ. With the NASDAQ Futures -0.45% as I write, we are in serious danger of a clear breach and close below that level today.
The S&P has a larger value component than the NASDAQ and is hanging in better, closing right on its 50 DMA yesterday….. again. With the S&P Futures -0.4% as I write, however, that level is also in danger of being breached and closed below today.
IMO the most important ETF in the market is the QQQ, which is breaking down, and the second is ARKK which is -20% over the last 12 sessions.
In sum, this market appears to be topping out and on the verge of breaking down.
One major indicator that the top is in is the outperformance of Value vs Grwoth since the February 16, 2021 high. This was in evidence yesterday (Wednesday) with the S&P Value ETF (IVE) down only 0.01% while the S&P Growth ETF (IVW) was -2.52%.
And it started at the market’s most recent high on Tuesday February 16, 2021.
They are selling the best performing segments of the bull market (Growth) and shifting into more defensive names (Value). However, Value makes up such a small proportion of the major indexes that it cannot carry them higher on its own. Without some participation from Growth, the bull market is over.
Finally, there will be a powerful bounce sometime soon. That’s because the crowd believes this to be a correction within a bull market. They have been conditioned to Buy The Dip for 12 years and that habit won’t die easily.
However, this time buying the dip will be the wrong move as it will not be a correction in a bull market but a countertrend move in a new bear market. Therefore, the correct move will be to sell into this rally and even short it. However, understand the way the crowd views the current action (i.e. a correction in an ongoing bull market) and therefore be patient as the bounce is likely to be powerful.