Market Milestones: Why So Bearish?

Maybe it’s the constant barrage of bad news—the war in the Middle East, the East Coast dock workers strike, which appears to be over, or a myriad of other negative stories—but something has me feeling a bit bearish. The gold chart suggests I’m not the only one, as gold continues to break out and make new highs on a weekly basis. Fear is in the air, and it’s not hard to see why. However, it's challenging to pinpoint exactly what might trigger a market drop, and when. The Fed has us believing that they’ve landed this economy perfectly, and the un-inversion of the yield curve is nothing to worry about. Our politicians and leaders want us to think they can print us out of any disaster or slowdown without negative consequences, and that markets will rise forever. Just look at China for a cautionary example. Every now and then, I feel I’ve had enough of the lies and the bull, and I’m ready to hibernate, bunker down, and get a little bearish.

GOLD

This past week, we’ve seen a recovery in the crude oil chart after it held critical support at $67.67. It double-bottomed and is pushing higher, lending credence to the idea that September’s breakdown from the two-year triangle was a false breakdown. Crude oil is back at its trendline, this time from below. The next few weeks could be critical for this market. XLE, the energy sector ETF, also held its key support and is beginning to look like it could break out of an ascending triangle in the coming weeks. If XLE breaks out and oil continues to rise, that wouldn’t bode well for inflation. This potential reinflationary force comes just weeks after central banks worldwide began rate-cutting campaigns, flooding liquidity into the system. Rising energy costs could force the Fed to rethink their dot plot for 2024 and 2025, jeopardizing their soft-landing scenario. If XLE breaks out, inflation will quickly return as a major concern for market participants. Bonds have been signaling that something is amiss, as TLT has been in a downtrend ever since the Fed's historic 50 basis point rate cut. Normally, such a large rate cut would be bullish for long-dated bonds, but the bond market seems to disagree. Why is that?

Crude Oil

XLE

Microsoft, one of the most important stocks in the market and the second-largest company in the world, has been making lower highs since June and is sitting at a critical level—the 200-day simple moving average (200DSMA). The bullish trendline that supported MSFT since January 2023 has now become resistance, and it’s hard to miss the potential head and shoulders pattern forming.

MSFT

NVDA, the strongest semiconductor stock of 2023 and the first half of 2024, has been consolidating and underperforming for nearly four months. This is despite the stream of bullish news about Blackwell demand and the future of AI. NVDA needs to break out of its triangle, retest and hold the bearish trend line, and move higher to shake off the relative weakness that has plagued it for the entire summer.

Most mega-cap tech stocks are riding the struggle bus right now, with the exception of META. GOOGL, AMZN, and MSFT, as mentioned above, are all displaying bearish setups that, if not negated, could take them back to their August lows. Of course, we could always see a strong bounce from the mega-caps which could start to negate some of the bearish signals mentioned above. But until that happens, I’m comfortable remaining cautious, hedging, and raising cash.

NVDA

If you would like an additional reason to be bearish or at the very least cautious, SPY has a prime bearish 10EMA set up. Both SPY and DIA have pushed into their upper trendlines and failed on lower volume with bearish divergence. If the 10EMA triggers on SPY, $555.00 will be the next support level that needs to hold. If we don't trigger the bearish 10EMA and instead push higher, which is totally fine with me, SPY could easily move back into the upper trend zone between $580.00 and $590.00 over the next several weeks. If it does so with greater divergence, lower momentum and decreasing volume, that would be an ideal spot to raise cash and hedge portfolios.

SPY

DIA