STOCKS SELL OFF ON HAWKISH FED -- MAJOR DOWNTREND IS STILL INTACT

STOCKS SELL OFF FOLLOWING POWELL SPEECH... A modest rally attempt was turned back pretty decisively today following a speech by Fed chief Powell that sounded more hawkish than the market was expecting.   Friday's heavy selling also reinforced the view expressed last Friday that the summer rally in stocks had ended.   The daily bars in Chart 1 show the S&P 500 turning back last week from major resistance at its 200-day moving average (red line) and a major down trendline drawn over its 2022 peaks (blue line).    That was exactly where the summer rally should have peaked in order to maintain the market's major downtrend.    Which it appears to have done.

NASDAQ LEADS MARKET LOWER... Chart 2 shows the Dow Industrials in a similar negative trend.   It's also worth noting that its 14-day RSI line in the upper box has fallen below 50 from overbought territory, while daily MACD lines (lower box) have turned negative.   That's true of all three charts.   That combination is consistent with a market that has turned lower.  Chart 3 shows the Nasdaq Composite Index turning lower as well.   That index failed to reach its 200-day average and has led the selling this week.   That's due primarily to the fact that technology was the market's weakest sector on Friday and for the entire week.  Technology stocks are especially vulnerable to the recent upturn in bond yields and the prospect of higher rates ahead.   The next technical test should occur at 50-day moving averages.   The fact that the market's 50-day averages remain well below its 200-day averages is also consistent with an ongoing bear market.

Chart 1
Chart 2
Chart 3

ANOTHER MOVING AVERAGE TREND REMAINS BEARISH...   Another way to measure the strength of the stock market is to plot the percent of S&P 500 stocks trading above their 200-day moving averages.  Chart 4 shows that percentage line falling below its 50% level (horizontal line) to the lowest level in two years earlier this year before rebounding over the summer.   The summer bounce, however, reached the 50% level before turning down again over the last two weeks (red arrow).   One sign of a bear market is having more than half of its stocks trading below their  200-day moving averages.   The red % line has been in that bearish position for most of the year and remains there.  Its recent failure to clear its 50% line keeps the summer rally within the context of an ongoing bear market.  Friday's selling pushed that percentage level back down to 35% which means that two-thirds of S&P 500 stocks are still in major downtrends.   The blue down trendline also shows that a major downtrend in the percentage line starting in 2021  is still intact.

Chart 5
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