Technically Speaking: The Mark Of A Bear

In this past weekend’s missive “Market Bounces, Now Execute Sells,” the long consolidation process that began early this year finally resolved itself. Unfortunately, the resolution was to the downside as market stresses from China, the threat of rising interest rates and ongoing economic weakness finally overwhelmed the seemingly impervious bullish sentiment.

While the now “official correction” was not a surprise, and is something I warned of repeatedly over the last several months, it is possible that this is more than just a “buy the dip” opportunity. As I stated last Tuesday:

“Is this something more than just a simple correction? The honest answer is that no one really knows. The bulls are “hoping” that the worst is over and that the current bull market will resume its upward trend. However, there is ample evidence suggesting that something else may be afoot from slowing domestic and international growth, collapsing commodities and falling inflationary pressures.”

But the underlying fundamental and economic data have been weak for some time, yet the market continued its unabated rise. The Bulls have remained firmly in charge of the markets as the reach for returns exceeded the grasp of the underlying risk. It now seems that has changed. For the first time since 2007, as we see initial markings of a potential bear market cycle.

The first chart below shows the long-term trend of the market

Click on picture to enlarge

The bottom part of the chart is the most important. For the first time since 2000 or 2007, the market has now registered a momentum based “sell” signal. Importantly, this is a very different reading that what was seen during the 2010 and 2011“corrections” and suggests the current correction may be more significant.

The chart above is also confirmed by numerous other indications that also support the“mark of the bear.”