Although it is not visible in the major indexes, the current bear market started back in February 2021. That is when groups such as special purpose acquisition companies (SPACs), meme stocks, biotechnology, cannabis and other speculative names hit a top and started to decline.
The weakness was contained to small-caps and speculative stocks for a long time but started to spread to the broader market in November 2021. For many months I wrote about how the indexes were covering up the extremely poor action under the surface. Big-cap technology names such as Alphabet (GOOGL) , Microsoft (MSFT) , Amazon (AMZN) and Apple (AAPL) continued to show good relative strength even as the indexes started to roll over. This action helped to hide the level of carnage that was taking place under the surface.
This past week the big-cap technology stocks have all posted weak earnings and are trading lower. Meta Platforms (META) and Amazon were surprisingly poor and are significantly lower following their reports, but all five of the big-cap leaders are under pressure and are close to testing or breaking under their annual lows.
Is this the final stage of the bear market?
Every bear market is different, and this one has been unusual in how it has rolled from one sector and group to the next. It wasn't evident in the indexes for a very long time and the business media didn't even call it a bear market until earlier this year when the indexes finally dropped more than 20% and surpassed the defined threshold.
I actively avoid making market predictions and stay focused on price action as the main clue as to where the market is heading. The thing that is most notable about the current action is that the indexes are holding up extremely well even though the big-cap technology leaders are blowing up. This is positive non-confirmation and indicates that maybe the rest of the market already has undergone a severe bear market and is now finding support
What is particularly interesting about this action is that no one saw it coming. There have been no predictions or forecasts that big-cap technology would break down and not drag down the rest of the market.
We will need to stay vigilant and see how this develops, but it is intriguing rotational action. We are heading into some of the strongest seasonality of the year, and there is building hope that the Fed will indicate some slight pivot in its hawkishness next week when it raises rates by an expected 75 basis points.
The biggest obstacle that the market faces is the macroeconomic situation. Although there is hope that inflation is cooling, there are increased concerns that growth is slowing and that unemployment is about to spike up significantly. Inflation is still not under control and is going to remain elevated for many months.
My game plan is to watch the price action and to see if there is relative strength in groups outside big-cap technology. If the broader market can continue to withstand the big-cap pressure, that will be very promising for an energetic bear market rally into the end of the year.
