The chart on the right highlights the S&P 500 Index daily price in 2022 year-to-date – indicating that the index has been making lower lows and (some) lower highs since the beginning of the sell-off in equity markets in January of this year.
Each lower low and the subsequent rally from that low is highlighted with its own colour. In two cases (purple and red) the recovery highs were higher than the previous ones, so the pattern hasn’t been perfect. Since the beginning of 2022, there have been four rallies from lower lows with the June low seeing the strongest rally of 17%.
As the chart highlights, the sell-off in markets towards the end of September has once again resulted in a lower low – with the S&P 500 Index closing below the June lows. Markets have rallied following this low. Where we go from here, however, is anyone’s guess, in the short-term at least.
Lower lows and lower highs are a hallmark pattern of a bear market. We also got a ‘Sell’ signal from Dow Theory for the 21st Century in mid-September so until proven otherwise, the US equity market remains in a downtrend based on Dow Theory.
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