With the markets bouncing off its' lows and come roaring back to close the week with a gain, it has left many to wonder if this is 2008 or 2011 playing out. The argument for a continued bull market is that the market did hold the previous support of October's 2014 sell off, and put in a weekly reversal hammer. Also, the market was able to hold its' long term support line formed by the 2009 and 2011 lows.
However, there are other indicators that point to continued selling later this year. The selloff in 2011 still held the 150 day moving average on the weekly chart. In this sell off, we see the market has broken the 150 day average, and remains to be below it, as it did in 2008. Another concerning indicator is the MACD. Take notice on how the MACD immediately turned up and broke its' downward trendline in 2011 to resume the bull run, where as now the MACD has begun to roll over much like in 2008.
To further strengthen the case of a continued bear run, look at how the price over extended itself by breaking out of its' price channel in late 2013. From 2013 to 2015 this resistance had become support before breaking late last year. This is similar to how the market reacted towards the end of the bull run in 2006. In 2006 price overextended itself and resistance became support for the next year and a half before breaking in 2008.
Finally, I would like to point out how over the previous 6 months, Utilities have been outperforming all other sectors down only 1.38%. This is a sign of investors putting their money into defensive positions. Over the same 6 months Technology, financials, healthcare, and transport sectors are down over 10% with energy down a resounding 25%.
In conclusion, despite bouncing off its' long term support line, I believe the market will show a loss at the end of 2016.
However, there are other indicators that point to continued selling later this year. The selloff in 2011 still held the 150 day moving average on the weekly chart. In this sell off, we see the market has broken the 150 day average, and remains to be below it, as it did in 2008. Another concerning indicator is the MACD. Take notice on how the MACD immediately turned up and broke its' downward trendline in 2011 to resume the bull run, where as now the MACD has begun to roll over much like in 2008.
To further strengthen the case of a continued bear run, look at how the price over extended itself by breaking out of its' price channel in late 2013. From 2013 to 2015 this resistance had become support before breaking late last year. This is similar to how the market reacted towards the end of the bull run in 2006. In 2006 price overextended itself and resistance became support for the next year and a half before breaking in 2008.
Finally, I would like to point out how over the previous 6 months, Utilities have been outperforming all other sectors down only 1.38%. This is a sign of investors putting their money into defensive positions. Over the same 6 months Technology, financials, healthcare, and transport sectors are down over 10% with energy down a resounding 25%.
In conclusion, despite bouncing off its' long term support line, I believe the market will show a loss at the end of 2016.
