The Market Crossed Below a Key Price Level this Morning – Bear Market Warning #1

I wanted to post an update on where the market is right now because we crossed a key level again this morning.  The more you cross key price levels the weaker the market becomes.  First, let me give you a quick tutorial on how all of this works.

When I refer to the stock market, I am referring to the S&P 500.  That is my index of choice.  The direction of the price level of the stock market is very telling with regards of the direction of the market.  Obviously, an increasing price level is a good thing and a decreasing price level is a bad thing.

The next thing that is important to know are key price levels.  Above certain price levels things are good.  Below certain price levels things are getting worst.  I will just tell you the price levels.  It wouldn’t be a good use of time as to how I came up with them.  Plus, some of this work is proprietary from my end.

Finally, markets have a tendency to go up and down in patterns.  These patterns can tell you a lot as to what is happening.

Here is a look at the market from this morning:

Bear Market Warning 1

Above, you have two parrellel red lines.  Literally since the end of 2014, the stock market has gone back and forth between those two parrellel red lines.  If the market can go above that top red line, that would be positive.  However, below that bottom line, is very negative.  This morning we fell below that bottom red line.

Here are key price levels:

1869 – My studies show that this price level can be an early warning that we are in a bear market.  If we stay below that number, the risk continues to increase that we are heading for steep losses.  The ability for the stock market to get back above that level would be positive.

1707 – This is the bear market line in the sand.  Below that price level and we are officially in a bear market.  Thus far the stock market has not crossed that barrier.  That is still quite a ways down from current price levels.

Conclusion – The risk level has greatly increased in the stock market.  The inability for the stock market to recover is a troubling sign.  If we do slide into the bear market, the losses are likely to mirror the losses incurred in the financial crisis.  A Plan B investment plan is warranted.

 

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