Equities in long-term bear market

Long-term major trends have been confirmed bearish for global stock markets, according to Robert Colby, Chief Investment Strategist at Robert W. Colby Asset Management.

In his report, Colby shows that the following markets are below both their 50- and 200- day simple moving averages (SMA) and the 50-day SMA is below the 200-day SMA, a key indicator of a systematically bearish market:

Dow Jones Industrial Average
Dow Jones Transportation Average (see Chart)
S&P 500
S&P 100
S&P MidCap 400
Russell 2000
MSCI Emerging Markets
MSCI EAFE Index (Index of developed equity markets outside US & Canada)

Short-term Colby says the stock market appears to be merely consolidating losses after its decisive August bearish breakdown. He thinks there could be room for a further oversold bounce and a test of the September high, but with the VIX volatility index reaching its highest level in 6 years in August, he suspects that the short-term action will be “volatile and very tricky, and any upside bounce may reverse literally overnight.”

Colby recommends using price rallies to reduce risk exposure, whilst rotating in defensive stock sectors such as Consumer Staples and Utilities, which may continue to show relative resilience. However, he says to avoid the Health Care sector, which made a significant low at the end of September and showed a bearish cross of the 50-day SMA below the 200-day SMA on 30 September.

See Chart of Dow Jones Transportation Average