Bearish momentum accelerates amid massive 19-to-1 down day

Focus: Volatility Index (VIX) signals 'relative' complacency for market conditions, Surging Treasury yields remain a headwind

Technically speaking, an already firmly-bearish bigger-picture backdrop continues to deteriorate.

On a headline basis, the S&P 500 has notched 13-month lows pressured amid unusually bearish market breadth — a 12-to-1 down day, and a 19-to-1 down day, across a tight three-session window.

Moreover, the damaging downdraft has registered amid a sentiment backdrop, as measured by the Volatility Index (VIX), still signaling relative complacency for the prevailing market conditions.

Editor’s Note: As always, updates can be directly accessed at https://chartingmarkets.substack.com.

Before detailing the U.S. markets’ wider view, the S&P 500’s hourly chart highlights the past four weeks.

As illustrated, the S&P has ventured under the 4,000 mark for the first time since March 2021.

The prevailing downturn originates from resistance (4,308) — detailed previously — a level matching the May peak.

More immediately, the 4,062 area pivots to first resistance.

Similarly, the Dow Jones Industrial Average has extended its downturn.

In its case, the prevailing pullback originates from the breakdown point, an area roughly matching the 50-day moving average, currently 33,989.

Against this backdrop, the Nasdaq Composite remains the weakest major benchmark.

In fact, the index has plunged as much as 1,411 points, or 10.9%, across just four sessions.

(By comparison, the S&P 500 has dropped as much as 7.7% across four sessions, and the Dow Jones Industrial Average has lost as much as 5.9% across the same span.)

Tactically, an inflection point rests at 11,990, a level precisely matching last week’s low and the week-to-date high.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has extended to 18-month lows. The agressive downturn originates from resistance around the 13,000 mark.

Tactically, the 12,555 area is now more distant, though it remains an inflection point.

Beyond specific levels, the Nasdaq’s intermediate- to longer-term bias remains firmly bearish.

Looking elsewhere, the Dow Jones Industrial Average has registered 13-month lows.

The prevailing downturn originates from resistance in the 34,050 area, detailed previously.

The May closing peak (34,061) registered nearby.

More immediately, the Dow has registered a material “lower low” on a closing basis, confirming its longer-term downtrend.

Meanwhile, the S&P 500 extended more aggressively under the February low. Consider its recent wide-ranging moves:

The index plunged 9.99% from the mid-April peak across just eight sessions.

It subsequently rallied 6.1% from the April low, across three sessions, and then dropped 7.7% over the most recent four-session span.

Unusually volatile, and otherwise challenging, market price action.

The bigger picture

As partly detailed above, an already-bearish bigger-picture backdrop continues to deteriorate.

On a headline basis, each big three U.S. benchmark has registered at least 13-month lows, pressured amid still broadly-based selling pressure.

Moving to the small-caps, the iShares Russell 2000 ETF has tagged 17-month lows, pressured amid increased volume.

Tactically, the breakdown point (188.00) closely matches the former trendline, and pivots to resistance. The initial retest of this area would be expected to draw selling pressure.

More broadly, the small-cap benchmark is traversing a less-charted patch — illustrated on the five-year chart — positioning it for potential downside follow-through.

Meanwhile, the SPDR S&P MidCap 400 ETF has violated major support, tagging 15-month lows.

Here again, the breakdown point — the 452.90 area — pivots to resistance. The pending retest from underneath will likely add color.

More broadly, the prevailing downturn punctuates a bearish continuation pattern, effectively capped by the 200-day moving average. This week’s leg lower confirms the downtrend.

Market breadth registers genuinely bearish extremes

Moving to market breadth, already broadly-based selling pressure has seriously accelerated in recent sessions.

Consider that the NYSE registered a nearly 12-to-1 down day Thursday, followed by Monday’s massive 19-to-1 down day. (Declining volume surpassed advancing volume by the stated margin.)

As always, in a textbook world, two 9-to-1 down days — across about a seven-session window — reliably signals a major trend shift.

In this case, the two more aggressive daily plunges — across a narrow three-session span — confirm the primary downtrend, already in play. (Also recall caution flags had previously signaled amid three 7-to-1 down days across a six-session span. See the May 3 review.)

Tactically, persistent broadly-based selling pressure on this order is generally not a bullish signal of market capitulation. Rather, it signals a selling stampede that’s intact pending signs to the contrary.

Also see April 25: S&P 500 fails major test, pressured amid 7-to-1 down day.

Returning to the S&P 500, this next chart is a weekly view, spanning 30 months. Each bar on the chart represents one week.

As illustrated, the S&P has started May — and the worst six months seasonally — with a technical breakdown.

The early-May downdraft punctuates a head-and-shoulders top, defined by the September, January and March peaks.

As always, the head-and-shoulders top is a high-reliability bearish reversal pattern. Note the trendline violation — punctuating the pattern — dovetailed with massively bearish internals detailed previously.

Tactically, recall a downside target projects to the 3,800 area from the former range. (See the April 29 review, as well as prior reviews.)

Returning to the six-month view, the S&P 500 continues to trend lower.

More directly, the prevailing downturn punctuates a material “lower low” — amid Monday’s massive 19-to-1 negative breadth — confirming the S&P 500’s primary downtrend.

Broadening slightly, recall the mid-April peak punctuated a failed test of the 200-day moving average — the 4,495 area — from underneath. That downturn from the April peak spanned 9.99% across just eight sessions.

By comparison, the subsequent whipsaw from the April low registered as flattish, in the broad sweep, and has been punctuated by aggressive downside follow-through.

So the price action originating from the 200-day moving average — a widely-tracked longer-term trending indicator — is indeed signaling a longer-term downtrend.

Against this backdrop, the CBOE Volatility Index (VIX) has not yet registered “higher highs” even though the S&P 500 has notched a material “lower low.” More plainly, the prevailing sentiment backdrop also leaves the S&P 500 vulnerable to incremental downside.

Tactically, a corrective bounce is due — following a sharp four-session downdraft — though the S&P 500’s more important longer-term trends remain comfortably bearish.

Surging Treasury yields present market headwind

Concluding with one stray note, the 10-year Treasury note yield (TNX) continues to take flight.

In the process, the yield has knifed to 42-month highs, its highest levels since Novmeber 2018.

More broadly, the yield started 2022 with a sharp trendline breakout — (see the 30-month chart) — and has since followed through sharply.

From bottom to top, the prevailing upturn has spanned 147 basis points, across just 46 sessions, amid the yield’s fastest rate of change since the 1990’s.

(The March 4 low registered at 1.70%. The yield tagged 3.17% on May 9, nearly 1.5 percentage points higher across about two months.)

Also notice the golden cross on the weekly chart — or bullish 50-week/200-week moving average crossover — an event that has signaled this week, though the weekly close is still pending.

Also see May 5: Charting a bull-bear battle, S&P 500 challenges major support.

Also see April 29: Charting the S&P 500's precarious backdrop as currency trends accelerate.

Also see April 27: S&P 500 rallies from major support (4,170) even as bigger-picture backdrop deteriorates.