Over the last few weeks, several of my core market health indicator categories have turned positive. However, they’re barely moving above zero and have turned down early this week. In addition, my market risk indicator isn’t showing any signs of wanting to clear. Its core indicators are showing strength, but have turned back down. The downturn is happening at both a normal resistance point to consolidate the recent rally and where it should if we’re in a bear market. This, along with my core indicators compressing near zero, is creating an inflection point that could resolve either higher or lower. This will make the next few weeks very important for the market.
So far, price is merely consolidating the rally out of the December 24th lows. As long as the S&P 500 Index (SPX) can say above or near its 50 day moving average I won’t worry too much. However, a clear break of the 50 and 20 dmas would tilt the odds toward revisiting and breaking the lows.
Dow Theory also has the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) pressing up against the 66% retracement level of the last decline. Roughly 25,000 for DJIA and 10,100 for DJTA. In a bear market, both averages should turn back down in this area and then continue to fall and break below the December 24th lows. If the averages can both move above the 66% retracement level then the odds start to favor the bulls.
The market is at an inflection point and is about to show its hand. Watch the 20 and 50 day simple moving averages on SPX for a downside break. Watch 25,000 on DJIA and 10,100 on DJTA for an upside break. The direction of the break should tell us if we’re in a long term bear market or if the worst is behind us.