The Next Phase of the 2022 Bear Market Could Start Soon

Posted by jbrumley on August 7, 2022 6:25 PM

-- Hopefully you listened to my 'market calls' in December and May. Here's my next forecast. --

By Bruce Kamich,

I have been writing recently about rising wedge patterns on Costco ( COST) here and on Apple ( AAPL) here. I devoted Chapter 9 in my book "Chart Patterns" to wedges.
Let me show you potential rising wedges on the major averages using the charts of SPDR S&P 500 ETF Trust ( SPY) , Invesco QQQ Trust ( QQQ) and the SPDR Dow Jones Industrial Average ETF Trust ( DIA) .  


In this daily bar chart of the DIA, below, we can see that prices made a low in June and a shallow retest in July. Prices have continued to move higher in a tighter and tighter trading range. So far DIA has stopped short of its June highs.

Trading volume has declined from the middle of June and to old-time chart readers like myself that is a problem. Trading volume should increase in the direction of the trend to give us confidence in the advance. That is not the case here.
The daily On-Balance-Volume (OBV) line shows a decline into July and only the slightest improvement. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but could cross to the downside in the days ahead.   


In this daily bar chart of the SPY, below, we can see the same rising wedge pattern we outlined for the DIA above. Here the SPY has pushed higher into the early June peak. Prices are trading above the rising 50-day moving average line but remain below the declining 200-day line.

The OBV line is struggling to improve and trading volume has declined since the middle of June.


In this daily bar chart of the popular QQQ, below, we can see the same rising wedge pattern but here the QQQ has broken above its June high and some market observers have turned bullish. Still the trading has declined since the middle of June and that is not bullish to me.

The OBV line for the QQQ is more positive than for the DIA and the SPY but that is not enough to recommend purchase. 

Bottom-Line Strategy

Regular readers of Real Money may remember I turned bearish on the broader market averages in early December and saw a trading rally around the middle of May. That trading rally appears to be over for the most part and I see the risks to the downside again. Traders should take appropriate action to nail down profits.