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September 22, 2022: Bearish warning signals build

Following the September 9, 2022 report titled: "Is this the countdown to the end of the bull market?", additional evidence continues to indicate market weakness is building.

The U.S. Yield Curve has remained inverted since mid-July.  The importance of this information is that whenever the curve has been inverted for 6 weeks or longer, as it has now, a recession and a market downturn have developed. The inverted U.S. yield curve has been the trigger for the current market rollover (Chart 1).

2-year US T-bond yields are now 4.12%.  10-year yields are 3.70% and long 30-year yields are 3.63%.

The impact of the prolonged yield curve inversion is now developing into weakness in the stock market. 

The S&P 500 (Chart 2) continues to roll over since achieving an all-time high in early January.  The lower diagram in Chart 2 is the percentage of rising stocks within the S&P 500.  Presently there is only about 20% advancing and 80% declining.  

Buying momentum (RSI) has remained negative (below 50) since Q1.

The next expected support level and target in October is 3,450.

A similar scenario is developing for the broader Dow Jones Global Index (Chart 3). 

This world index is also rolling over with two failed attempts to advance over the key 50-week moving average. The index also appears to be starting to break down through the main price support level of 445.

Bottom line:  The continued inversion of the U.S. yield curve is a strong warning sign to the stock market.  Since the 1960s, whenever the U.S. yield curve has been inverted for more than 6 weeks, a rollover and a recession have developed.  The S&P 500 and the broader Dow Jones Global Index are starting to show some warning signs.

Models for both equity indexes show continued price weakness in October.