At least 6 signs show the stock market is starting to break down

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.

Tech wreck

The Nasdaq Composite
COMP,
-1.15%
has been in a downward spiral. The popular technology index on Wednesday logged its first close in correction territory since 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 Composite on Tuesday notched its first close below a closely watched, long-term trend line since April of 2020—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.

Death cross for the smalls

The small-capitalization focused 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 crosses (DMA) 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
RUT,
-1.60%,
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:

• Since inception, the Russell 2000 has entered into a death cross twenty-six times, including Wednesday’s entrance

• The average amount of trading days the 50-day moving average stays under the 200-day moving average is 104 trading days

• In 2020, the index spent 103 trading days with the 50-day moving average below the 200-day moving average

The S&P 500’s 100

The S&P 500’s midterm moving average, its 100-day, was breached on Wednesday. The broad-market index hasn’t closed below that level since around October of 2021. Falling below that mark now may signal that the 200-day trend line may be next to fall.

Fear gauge

A closely watched measure of stock-market volatility often used as a proxy for investor anxiety, the Cboe Volatiity Index
VIX,
+4.65%,
typically referred by its ticker “VIX,” has been elevated for much of 2022. The index, which has a long-run average around 20, has been hanging above that level. The VIX, which closed at 23.85, is trading above its 50-day moving average of 20.24, FactSet data show.

The scope of the stock market’s upside potential may hinge on the VIX, which uses options prices on S&P 500 stocks to gauge implied, or expected, volatility for the benchmark over the coming 30-day period.

The VIX moves inversely to stocks and a rising VIX implies that investors are betting on turbulence in the coming month.

Bouncy bund

One of Europe’s most closely watched government bond yields, the 10-year German Treasury, aka the bund, turned positive for the first time since 2019, highlighting a broad swing higher in global yields.

The yield on the 10-year German bund
TMBMKDE-10Y,
-0.009%
rose as high as 0.021% on Wednesday, with the U.S. 10-year Treasury yield
TMUBMUSD10Y,
1.850%
at 1.826% and the 2-year Treasury note
TMUBMUSD02Y,
1.047%
yielding above 1%.

Markets are anticipating an aggressive path for policy from the U.S. Federal Reserve and that is rippling through global markets, least of all those in America.

A rapid rise in yield has been putting pressure on the stock market and a climb in German bunds may contribute to headwinds for the U.S. Treasury because European investors might see some value in buying bunds in positive territory. Yields rise for debt as prices fall.

Slumping sectors

Only 2 of the S&P 500’s 11 sectors are in positive territory for the year so far: energy
SP500.10,
-0.66%,
up over 16% and financials
SP500.40,
-1.65%,
rising 0.4%. Technology
SP500.45,
-1.37%
and real estate
SP500.60,
-1.21%
are seeing the steepest declines so far in 2022.