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Make or Break for the Long Term Trend

I’m seeing several signs that we’re at an inflection point for the long term trend of the market (meaning years). It has been uptrending since 2009 and it looks like it’s make or break time for the bull. Here are some of the things I’m seeing that indicate the market must rally very soon or the long term trend will be down and a new bear market has begun.

First is my market risk indicator, which is an intermediate term indicator, has just signaled. Take a look at the chart below and you’ll see that it signals at inflection points. It generally warns very near the low or just as the market is generating downside momentum. This indicator suggests that more excitement (either up or down) is close.

160116MarketRisk

Next we have Dow Theory. It is only a few percentage points away from signaling a long term bear market. This indicator marks very long term trends in the market. When both indexes break their secondary lows it tells us that the trend could be down for a few years. The transports (DJTA) have already failed. If the industrials (DJIA) close below 15666 we’ll have confirmation of a long term bear market from Dow Theory.

160116DowTheory

Another long term trend indicator that I use comes from Trade Followers. It calculates breadth between the number of stocks that have bullish sentiment on the Twitter stream and those with bearish sentiment. Currently, the number of bullish and bearish stocks are the same, resulting in breadth of zero. A fall below zero would indicate a long term bear market is likely underway. This indicator has never dipped below zero from its inception in late 2012.

160116breadth

Long term momentum for the S&P 500 Index (SPX) is breaking down as well. MACD and Momentum don’t generally get this damaged without being in a bear market. This is a monthly indicator so it still has until the end of January to recover. Once again, the market needs to bounce now or this indicator will signal a bear market too.

160116Momentum

One indicator that changed character on this last low is price tweets from traders on Twitter. Usually the market bounces almost concurrently with support levels tweeted by traders that are significantly below the market. That didn’t happen this time. We got a bounce that lasted only a day and a half, then a resumption of the downtrend. It appears that we’re getting bear market behavior instead of bull market behavior when fear starts showing up in price targets.

160116spxSR

Conclusion

Several indicators are all saying the same thing… that we’re at an inflection point between a long term bull market and a long term bear. If the market can’t bounce soon we’ll officially be in a bear market confirmed by several reliable indicators.

 
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