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Lost 20% in the S&P 500 Bear Market? Here's What to Do

The S&P 500 makes 2022 lows as it grinds down into a bear market. Here are the must-know levels now.

The markets are getting pummeled on Friday, surely not the way that the bulls want to end the week.

The fact that the stock market initially gapped higher to begin the session is only salt in the wound. The Nasdaq is now down 32% from the high, while the S&P 500 is down 21%.

At first it was just growth stocks and lower-quality names that were under pressure, while consumer staples and high-quality retailers were holding in just fine.

But then the selling pressure crept in … everywhere.

Apple  (AAPL) - Get Apple Inc. Report and Microsoft  (MSFT) - Get Microsoft Corporation Report broke key support. The one area of tech that was holding up, cybersecurity, got whacked — and look how good the earnings from Palo Alto Networks  (PANW) - Get Palo Alto Networks Inc. Report were.

Retail got sucker-punched this week and even Deere  (DE) - Get Deere & Company Report took it on the chin despite a strong quarter on Friday.

Put simply, there’s nowhere left to hide. The lone sector that continues to do well? Energy. To some extent, utilities are holding up, but by and large this market is being decimated.

Time to Buy Stocks or Jump Ship?

Weekly chart of the S&P 500.

Weekly chart of the S&P 500.

It's not the most opportune time to bail after a 21% decline from the highs. As we push through the onslaught of selling, we have the S&P 500 down for a seventh week.

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Coming into the week, the index had marked six consecutive weekly declines only seven times in the previous three decades. Only once in that span did it fall in the seventh week. 

In fact, this is just the fourth time we've seen seven straight weekly declines since 1928.

In two of those three previous occasions, the S&P 500 went on to decline for an eighth straight week. But in all three instances, the intermediate-term bottom was put in during the dip.

Interestingly, all four scenarios happened in either March or May.

In any case, the S&P 500 has been a pit of misery lately. So far we have an ABC correction, with the 161.8% downside extension of the most recent leg within a stone’s throw of current levels, down at 3,793.

That’s not to say it will be the low. But it’s getting to an area where I wouldn’t be surprised to see a bounce in the not-too-distant future.

If we do rally, 4,000 is the first area of interest. That’s followed by the two-week high at 4,090. Above that could open the door to the 4,175 to 4,200 range. There, we find the declining 10-week moving average, which is followed by 4,300 and the 50-day moving average.

On the downside, a move below 3,793 has me watching two areas: 3,500 and 3,390 to 3400.

The first level marks the rising 200-week moving average, along with the third-quarter breakout level in 2020. 

If this area fails as support, it could put the pre-covid high on the table just below 3,400.