Technical Update 38.09

Another week of losses for the major averages gives heightened probability that a major top has been reached. There remains, however, numerous market anomalies that one would not expect if "a change in market character" is what one is looking for. This could, in fact, be nothing more than an overbought correction much like we saw in July.

In the "failing to confirm" category lies crude oil, which remains sticky after posting a 6% weekly gain. The US Dollar, which only managed a third of a percent gain for the week, may also be hinting at something amiss with the validity of the selloff.

I remain cautiously bearish until those two above factors resolve themselves. But I would warn against complacency for those holding large long positions. When this major downward movement materializes, it will not be merely a "correction" of the March-September bull market. We will be proceeding to substantial new lows as the economy deflates, deleverages and completely retools for future expansion. In all likelihood, the highs we achieve in the next weeks (or have achieved already at 1080) will remain in place for a decade or longer.

Moving back to the shorter term for a moment, I would point to some of the recent failures in the S&P 500. Strong markets display strong price movement into the ends of days and weeks. For two weeks running now, we have seen midweek tops on Wednesday afternoon and continued selling pressure for the remainder of the week. This shows that traders are more reluctant to hold positions over the weekend.



Also note that there were two very noticeable bullish patterns carved out this week, both of which failed. Failed patterns often lead to sharp moves in the opposite direction.



Market internals continue to weaken. Advancing/Declining issues and volume are both on the brink of displaying their weakest readings since March.





Market volatility is also ticking upward and recently displayed a positive divergence with the overall markets, refusing to move significantly lower as the major indices climbed higher in September. Additionally, the VIX has broken a trendline dating back to the October/November '08 peaks. Does this breakout look too obvious?



That's all for now.

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