MEDIUM TERM MARKET TREND MODEL TURNS BEARISH.

12 March 2025

Medium-Term Market Trend Model Turns Bearish

Summary of this report from Investopedia's Chart Advisor.

Key takeaway : The medium-term trend turning bearish suggests that investors should be cautious in the coming months.

With things as they are today, maybe the best tactic is wait-and-hope for a bounce over the next week or two....perhaps up until june... and then out of developed market ETFs for the remainder of the year.... "all things being equal", ceteris paribus, meaning unless the indicators change. Because this Trump transition will take a year or two and there could likely be many hiccups along the way.

And note that unless the whole world economy flips from west to east, then if there's a downturn in America, it'll be worse for the emerging markets.

The American economy is looking shaky, there's a lot of uncertainty and unpredictability around, and these tariffs are more specifically what's causing the current short and medium term bearishness.

If the long-term is looking okay, it's because Trump's strategy is putting us in a transition period. But for now, the focus is on capital preservation and not growth. Just be max. cautious and think short term only.

This article comes in 5 parts:

 

  I - The first part defines what short medium and long-term means. 

 II - The second is the key takeaways from the reort.  

III - The third is the report summarised by my friend,

IV - Then lastly, some of the key technical terms that you need to understand the report are defined.

 V - Conclusion

 VI - And finally, the actual report from Investopedia - is.gd/CNe5Ry

Part I

So, reading this report, what does "short-, medium-, and long-term time frames" mean:

1. Short-Term:

Days to weeks (typically up to 3 months).

The report references multiple short-term bearish signals in 2024, which were seen as temporary pullbacks within a broader bullish medium term trend.

Traders often look at daily and weekly price action, moving averages, and momentum indicators for short-term trends.

2. Medium-Term:

Several months to a year (typically 3 months to 1 year).

The Market Trend Model turning bearish on this medium timeframe suggests that your outlook for the next several months should be risk-averse. Alexis is right to put his money into short term money markets, or perhaps a bond ladder.

Investors use indicators like the 200-day moving average, 200 SMA, Fibonacci retracements, and market breadth metrics to gauge medium-term trends.

( i've defined these technical terms below....)

3. Long-Term:

Several years (typically 1 year or more, up to a decade).

The report states that the long-term trend remains bullish, meaning the market’s broader secular trend is still positive despite short- and medium-term pullbacks.

Long-term investors focus on fundamentals, macroeconomic trends, and major cycles rather than daily or monthly price movements.

Part II

Key Takeaway:

The short-term trend can fluctuate often and is relevant for traders.

The medium-term trend turning bearish suggests that investors should be cautious in the coming months.

The long-term trend remains bullish, implying that the overall structural bull market is still intact, despite near-term corrections.

Part III

Summarising the report:

1. Medium-Term Market Trend Model Turns Bearish

The Market Trend Model has turned bearish on the medium-term for the first time since October 2023.

The long-term trend remains bullish, indicating that the broader secular market trend is still intact.

The shift to a bearish medium-term trend suggests a greater focus on capital preservation rather than growth.

In 2024, multiple short-term bearish signals occurred, but they were contained within a medium-term bullish trend, allowing for buyable pullbacks.

However, the 2025 market trends are now diverging from 2024, raising concerns that the market may not follow the same bullish recovery pattern.

2. 5500 Becomes Minimum Downside Target for S&P 500

The S&P 500 has dropped nearly 10% from its recent all-time high of 6150, a decline similar to the July 2024 pullback.

The key support level of 5850 has been broken, and the index has fallen below the 200-day moving average, reinforcing a bearish outlook.

A downside target of 5500 is based on a 61.8% Fibonacci retracement of the previous uptrend (August to December 2024), suggesting a potential support level for a countertrend bounce.

The 200-day moving average is now acting as a resistance level for the market, and with RSI (Relative Strength Index) oversold conditions, further capitulation (forced selling) may occur before a possible rebound.

3. Breadth Conditions Continue to Deteriorate

The market’s breadth indicators (measuring how many stocks are participating in the trend) have weakened, with less than 50% of S&P 500 stocks now above their 200-day moving average.

Historically, when this breadth indicator drops below 50%, it has signaled further market weakness, as seen in September 2024, which preceded a six-week market decline.

The current market correction appears to be evolving into a major correction rather than a minor pullback, increasing downside risks.

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Part IV

Defining technical terms

1. Market Trend Model – A proprietary tool that determines whether the market is in a bullish or bearish phase based on price action, trend indicators, and breadth measures.

2. Secular Trend – A long-term market trend that lasts years or decades, regardless of short-term fluctuations.

3. Fibonacci Retracement – A technical analysis tool that identifies potential support and resistance levels based on key percentage retracements (23.6%, 38.2%, 50%, 61.8%, etc.). The 61.8% level is considered particularly significant.

4. 200-Day Moving Average – A key long-term indicator that helps determine the market’s primary trend. Falling below this level is generally seen as a bearish signal.

5. RSI (Relative Strength Index) – A momentum indicator that measures whether a stock or index is overbought (above 70) or oversold (below 30). An oversold condition suggests a potential short-term bounce.

6. Market Breadth – A measure of how many stocks are participating in a market trend. When fewer stocks remain above their 200-day moving average, it indicates weakening market strength.

7. Capitulation – A situation where investors panic-sell their assets, leading to a sharp drop in prices before a potential rebound.

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Part V

Conclusion:

The shift in the medium-term trend to bearish, the break below key support levels, and deteriorating market breadth suggest that the S&P 500 may be entering a more prolonged correction rather than a temporary pullback. Investors should focus on capital preservation and watch for signs of market capitulation before considering re-entry.

Part VI

The Report

 

Chart Advisor

By David Keller, CMT

1/ Medium-Term Market Trend Model Turns Bearish

2/ 5500 Becomes Minimum Downside Target For S&P 500

3/ Breadth Conditions Continue to Deteriorate

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 1/ Medium-Term Market Trend Model Turns Bearish

Our proprietary Market Trend Model turned bearish last Friday on the medium-term time frame for the first time since October 2023. While our long-term model remains bullish, suggesting the secular trend still remains intact, this bearish signal on the medium-term time frame tells us to focus more on capital preservation than capital growth.

Note how in 2024 we had five different bearish signals on the short-term time frame, yet the medium-term trend model remained bullish through the entire calendar year. This configuration represented a buyable pullback within a cyclical uptrend, since the medium-term and long-term trends remained firmly in the bullish range.

 

While we’ve been tracking rotations in market leadership, as well as bearish momentum and breadth divergences since November 2024, the continued bullish reading on the medium-term trend model helped us remain constructive into Q1 2025. There’s no guarantee that we’ll see a repeat of 2022 or any other bear market year, but the fact remains that the trends in 2025 are starting to very much diverge from the bullish path of 2024.

2/ 5500 Becomes Minimum Downside Target For S&P 500

After Monday’s step selloff to start the week, the S&P 500 index is now down almost 10% from its most recent all-time high around 6150. This means that the current pullback is basically in line with the July 2024 drawdown in terms of price and time.

With the key support level of 5850 in the rearview mirror, and with the 200-day moving average violated on Monday, we have established an initial downside target of 5500. That would represent a 61.8% Fibonacci retracement of the August 2024 to December 2024 uptrend phase, where we would expect at least some sort of countertrend bounce.  

 

The 200-day moving average now becomes resistance above the current price action, and given that the S&P 500 reached an RSI oversold condition for the first time since the August low, we would be looking for other signs of short-term capitulation starting this week.

3/ Breadth Conditions Continue to Deteriorate

Up through the end of last week, some of our longer-term breadth indicators remained bullish, but Monday’s selloff appears to have taken one more breadth indicator off the “still bullish” list. With less than 50% of S&P 500 members remaining above their 200-day moving average, we can now add “lack of breadth support” to the list of bearish market characteristics.

Going back to August 2024, that initial pullback from SPX 4600 appeared to be a minor pullback as this market breadth indicator remained above 50%. With most S&P 500 stocks still above their long-term trend barometer, how bearish could things really be?

 

Then in mid-September, we saw the indicator push below 50% as the S&P 500 made a new swing low. The market ended up going lower for another six weeks before eventually finding a bottom just above 4100 in late October. Now with less than 50% of S&P 500 members remaining above their 200-day, the current corrective phase is beginning to look more like a major correction as opposed to a tactical pullback.