Friday, January 15, 2016

In The Long-Term The US Stock Market Looks Bearish

The broad stock market is at its inflection point. In one of my last post I have noted that an S&P 500 index is drawing a huge technical pattern called "Head and Shoulders". Breaking down below 1,875 points level would mean that the pattern was filled. 

Today the index closed at 1,880 points so, basically, we are still in the upward trend. Who knows, maybe we will even see a bounce up.

However in the long-term the technical analysis says there is a very big chance the market is going to change its trend. Please, look at the chart below:

The chart shows the market price action (the upper chart) and the difference between the number of  new highs and new lows (lower, bigger chart).  

It is easily seen that in 2007, when the market was still going up, more shares were hitting new lows than new highs. Since the middle of 2015 the pattern seems to repeat - we see more shares recording new lows than those recording new highs.

In my opinion, it is a bearish pattern.


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