When SPX Trades Below CML, Breakdown Risk Increases
See the daily chart for $S&P 500(.SPX)$ and the CML posted during the last two years for every week, this monthly line is a great tool to assess bullish or bearish conditions, our role as traders is to make decisions studying price action, and the chart highlights how significant has been to lose the CML using the red areas:
Of course, there are choppy months like December 2024 when the CML was breached several times, that price action is something to consider as a condition as we use the VIX, divergences, or Bitcoin (you don’t need to trade it, just use it as a risk-on/off thermometer).
The selloff in March and April had a condition: The Price was below the CML.
We use the CWL to time momentum, the CML works better for medium or long term positions, the chart speaks by itself.
CML and Bear Markets
We just saw the case study for 2025, see what happened before the bear markets of 2022 and 2020:
Being positioned below the CML is a condition that increases the chances of a major breakdown. Bear in mind that bear markets have ferocious bear market rallies, if you remember March, or June-July 2022, the FOMO that they created was significant, but even the infamous Jackson Hole meeting on September 2022 that triggered the last major selloff of 2022 happened below the CML.
Another major event covered in the chart is the -10% correction of 2023, see how impressive is the constant condition of being below the CML.
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