By Mark DeCambre
Strap in! It could be a bumpy ride this year.
Financial markets are off to a woeful start for the bulls in 2022. Blame surging inflation, an out-of-step Federal Reserve or a nagging pandemic. But whatever boogeyman market participants identify, there are clear signs that the market is experiencing signs of wear and tear.
Here are a few market-based indicators that imply more bumps in the road ahead, or at least highlight the uneven path of market traversed thus far:
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.59% has been in a downward spiral. The popular technology index on Wednesday logged its first close in correction territory since last March, closing 10.69% below its Nov. 19 record peak and meeting the commonly used definition for a correction.
On top of that, the Nasdaq on Tuesday notched its first close since April 2020 below a closely watched, long-term trend line — its 200-day moving average . The breach of its 200-day may be a more compelling cause for concern for optimistic investors, given how long the index was able to stay above that level.
Moreover, Big Tech has performed the worst within the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.98% , with Salesforce.com /zigman2/quotes/200515854/composite CRM +0.42% , Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +3.20% , Cisco Systems /zigman2/quotes/209509471/composite CSCO +0.95% , Apple Inc. /zigman2/quotes/202934861/composite AAPL +4.01% and International Business Machines Corp. /zigman2/quotes/203856914/composite IBM +2.09% all down sharply in the year to date. Only Intel Corp. /zigman2/quotes/203649727/composite INTC +0.84% has been positive, up 4.1%, so far in January.
Semiconductor stocks have particularly taken it on the chin, with the popular exchange-traded iShares Semiconductor ETF /zigman2/quotes/209255350/composite SOXX +0.43% down 7.3% this week and down 8.5% so far this year, producing underperformance that rivals that of the Nasdaq Composite.
Market technician Mark Newton notes that the semiconductor ETF, a proxy for appetite for the broader technology sector, “just violated lows going back since last November 2021.”
He makes the case that in the near term, further weakness in SOX looks likely to 3,400, though he is bullish once it gets sufficiently beaten up.
Death cross for the smalls
The Russell 2000 index’s 50-day moving average fell below its 200-day moving average . A “death cross” appears when the 50-day moving average (DMA) crosses below the 200-DMA, which many chart watchers say marks the spot a short-term pullback graduates to a longer-term downtrend.
Small-caps, as measured by the Russell 2000 index /zigman2/quotes/210598147/delayed RUT +1.10% , have fared almost as badly as technology shares, down 8.1% in the year to date.
According to the folks at Dow Jones Market Data: