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With the market looking more vulnerable due to the weight of increasingly negative news on the fundamental front (inflation, write offs, earnings, housing, etc.), it is important that we begin to prepare for the possibility of further market weakness. I am monitoring our accounts and daily events very closely. As shown below in the chart of the S&P 500 Index (a.k.a. the stock market), the recent rally off the March lows has gradually been losing steam. If the March lows are violated, especially for an extended period of time, it may indicate that we have entered the next leg down in what is increasingly looking like a bear market. The jury is still out on the correction vs. bear market case.
Even after all the extreme actions from the Fed in the last few months, financial stocks are now lower than they were on the day of the Bear Stearns bailout (see graph below). Given the importance of financials to both the market and economy, this recent breach is quite significant.
Enjoy the rest of your day.
Chris Ciovacco
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