The Dominoes Are Starting to Fall
Editor's note: The stock market will crash in 2022...
That's the newest prediction from Ten Stock Trader editor Greg Diamond. For the most part, stocks have been on a one-way trip higher since the March 2020 crash. But the run-up can't last forever. And Greg believes a frightening theme within a certain group of stocks means a downturn is imminent...
In today's Masters Series – which originally ran in the December 20, 2021 Weekly Market Outlook for Ten Stock Trader subscribers – Greg uses his "technical analysis" strategy to detail the concerning long-term picture for stocks... and explains why a bull market breakdown could be headed our way...
The Dominoes Are Starting to Fall
"I'm sorry about the stock market, Greg"...
I get this a lot from friends and family when stocks go down, and I always chuckle. Do they assume I'm bullish? And why does the stock market going down have to be a bad thing?
It's a sign of the times, in my view.
Just about everyone is paying attention to the stock market these days. Bitcoin's market cap soared to $1 trillion last year... and non-fungible tokens ("NFTs") – digital versions of pictures of things – are selling for millions of dollars. All of this is a sign of the euphoria we're seeing in the capital markets right now.
But it won't last...
Most people believe that the big indexes are only going up from here. But they aren't looking at what's happening under the hood of the stock market. I detailed some examples last weekend... Today, I'm going to highlight more of what I'm seeing.
As I explained previously, what's playing out today is similar to what happened back in 2000. We're seeing many stocks that were participating in the bull market stall out, top, and then suffer serious declines.
So what does it mean?
It means the bull market is running out of energy... The clock is ticking.
Growth stocks aren't growing anymore...
To be clear, over the short term, I'm still bullish... But the long-term technical picture is concerning for bulls. That's because of this common theme playing out in the prices of several growth stocks.
These stocks started with huge moves up after the March 2020 pandemic crash... But now, these previous winners have all broken their uptrends, topped out, and are diverging from the major indexes.
I'll start with e-signature company DocuSign (DOCU). This was a high-growth company that participated in the bull market along with the major indexes. But it's not doing that anymore...
The stock rallied 385% from its March 2020 intraday low before topping out in September 2021. It couldn't keep up with the major indexes and has since crashed. The 200-day moving average ("200-DMA"), a measure of the long-term trend line, isn't even in the picture anymore...
Many of the major indexes are holding above their 200-DMAs, but not DocuSign. This is one of many growth stocks that's falling behind.
Another one is CrowdStrike (CRWD), which provides cybersecurity applications for companies around the world...
This stock had an eye-popping 830% rally from its March 2020 intraday low... Talk about growth. But it topped out in early November and dropped around 35% to its recent lows – breaking its uptrend and its 200-DMA. Take a look...
And combined with the action we're seeing across other growth stocks now, this is cause for concern.
Let's look at mobile-payments company Block (SQ) – which changed its name from Square in December...
Similar to other growth stocks, Block skyrocketed almost 800% from its March 2020 intraday low, but topped out back in August 2021. It's now trading well below its 200-DMA.
It also couldn't hold previous "support" (the blue lines in the chart below), an important technical level at which traders tend to buy. Breaking below support turns the level into "resistance." It essentially makes it much harder for shares to rise above that point.
Take a look...
You can see the theme I'm highlighting with these stocks. It's the same story in cloud-communications company Twilio (TWLO)...
The stock had a 570% rally from its March 2020 intraday low. But it topped out way back in February 2021 and hasn't kept up with the overall market since. Twilio's stock is below its 200-DMA, and the uptrend is broken...
As I explained last week, it doesn't matter why these giants are down. It only matters that they are down relative to the other big growth and tech stocks around the world.
Capital is fleeing. When these stocks participated in the rally on the way up, that confirmed the strength in growth stocks – and that was great. But now that they aren't, it puts the bull market on thin ice.
These are the stocks that are falling. Which stocks are keeping the major indexes up? For the most part, the leaders are Apple (AAPL), Microsoft (MSFT), and Google parent Alphabet (GOOGL). There are others, but those are the big three.
If you lined up all the big growth stocks like dominoes, you'd see that some are falling... And those three major growth leaders – Apple, Microsoft, and Alphabet – are at the end of that line.
They're supporting the weight of the major indexes for now... But eventually, they'll succumb to this bull market breakdown in 2022.
Regards,
Greg Diamond
Editor's note: Greg says the crash he's predicting for 2022 could lead to a financial disaster for unprepared investors. But if you're ready for the downturn, you could potentially double your money 10 different times – without buying a single stock...
In an emergency briefing last week, Greg revealed the exact date he believes the market will plummet... and the names and ticker symbols of five stocks to target with his unique trading strategy. If you missed it, you can still access his free "Crash Survival Kit" for a limited time. Click here to get started.