Written by William Kurtz
The Dow Jones Transportation Average posted a new High on July 14, and has been declining hard ever since. (It picked up 37 points on Friday, but is still more than 500 points below its High). The NASDAQs, the Midcaps, the Smallcaps, the Russell 2000, and the S&P 500 peaked last Thursday, or earlier, and closed lower on the day last Friday. Only the Dow Industrials had held on, and spiked to a new High (21841.18) on Friday before backing down somewhat, but still closed Up 33.76 points on the day.
The NASDAQs, the S&P 500, the Russell 2000, the Smallcaps, and the Midcaps all display bearish Candlestick trend-reversal warning patterns. As mentioned in earlier writings, the VIX “fear/complacency Index” has posted a Key Reversal, whereby its trend is now Up (i.e., in the direction of “fear”); and its volatility spiked to 11.50 on Thursday and remains elevated.
Only the Dow Industrials, of all of the Indexes, spiked to a new High on Friday, before backing down. The very large disparity in the recent performances of the Dow Industrials and the Dow Transports suggested that the Industrials Index cannot maintain its lonely stance much longer.
Several of our Indicators tell us that the Industrials Index is primed for a fall. Still, the Daily chart of the Industrials, all the way down through the 30-minute chart, do not offer any “Candlesticks” evidence of an impening Reversal. The 15-minute chart, though, shows a bearish “Shooting Star,” and the 10-minute chart shows a very bearish “High-Wave Doji.” The 5-minute chart, which I show below, displays a “Bearish Engulfing” Pattern. It seems to me that the bearishness of these three charts, when considered together with the bearishness of our other Indicators and of the VIX, reveals a high likelihood that the Dow Industrials will decline from here.
Actually, I think it is highly likely that ALL of the Indexes will decline from here.
I expect that this decline will be deep and long-lasting. It will not be a “flash in the pan” that will persist for a few days and then the Dow (et cetera) will “revert to their normal stance” and continue to rise.
I think it’s more probable than not that these recent all-time Highs do NOT represent the “Ultimate Peak” that we know is coming – in other words, that we still have time to watch and wait. We might win that bet, but it would be a dangerous game; and meanwhile our capital and our accumulated paper profit would be at risk. I think that the prudent course right now would be to “lighten up.”
And what if these recent Highs WERE the “Ultimate Peak?” In that case, we have no time left in which to watch and wait; time’s up; we should be out of the market by noon on Monday!
The upside potential for additional profit is very limited, whereas the opportunity for profit in the approaching declining market is enormous. Don’t let it pass you by!
