Is a Bear Market Forming?, pt. III

The new year has not been kind to the markets. All of the major averages are down. However, beneath the numbers another bearish trend is developing. Two more sectors of the S&P 500 have now fallen below their respective 200 day simple moving averages, which does not bode well.

Let's start off with the good news.



Although the basic materials sector is below its 200 day SMA, I wouldn't put this is the "raising concern" category. First, the ETF has been here before -- twice since last August. Secondly, if you look at the last 6 months of price action, it looks more as though prices are consolidating in a range rather than falling. Third, China and India are still expanding at a strong clip which should keep demand high.



Energy is still in an uptrend. It is above its 200 day SMA and has a clear support trend line. In addition, oil is still in a bull market and the world's energy needs won't go away anytime soon.



Utilities are still in an uptrend as well. They have a clear uptrend in place, are above their 200 day SMA and are overall advancing nicely. This sector also benefits from a "flight to safety" trend in the markets.



Although consumer staples are dipped below their trend line they are still above their 200 day SMA. While this sector will probably be a bit shakier than the utilities, I don't anticipate a major sell-off; these are generally lower beta stocks.



Health care continues to trade around its 200 day SMA. Again, this is a lower beta area of the market that probably won't see major selling. People continue to get sick in a recession.

So, we have five areas of the market that are doing well -- or at least aren't hurting horribly. However



The financials are still a wreck. As the writedowns continue expect this trend to continue.



Consumer discretionary also continues to be very weak. Like the financials, this is a very bearish chart. Notice prices are below all the SMAs, the shorter SMAs are below the longer SMAs, all the SMAs are headed lower and prices are below the 200 day SMA. It doesn't get any more bearish than that.

Now we have two more sectors that are looking much weaker.



Technology -- which was supposed to save the market -- has dropped hard since the beginning of the year on heavy selling. It is now below its 200 day SMA. This is not a good sign.



Industrials have also sold off hard on heavy volume since the beginning of the year. They are also below the9r 200 day SMA. Next week's news from the Empire and Philly area manufacturing districts could pose further problems. In addition, this area of the market has benefited from the increase in exports the US is experiencing. For this sector to be performing poorly in the face of that news should raise some eyebrows.

So -- two more areas are now in technical bear market territory. That is not a good development.