Are Stock Market Indexes Topping?
Well, that was fast. The stock market's pullback has been sharp and is likely not over.
Last week, I shared the same chart, calling it a “moment of truth” for the stock market. Would the 3 underperforming stock-market indexes (in the lower half of the chart) bring down the outperforming 3 indexes (in the upper half)? Dow Jones, S&P 500 index, the Nasdaq 100 versus the Russell 2000, Dow Jones Transportation index and S&P Midcap 400index.
So far, the answer is yes. Well, at least the under-performers have helped to bring about a short-term sharp pullback.
BUT, the question now is: Will the underperformers drag the broader market into a correction – maybe even a bear market?
Let’s look closer at the chart above.
As you can see, each of the stock-market indexes in the upper and lower half is testing critical up-trend support at (3). Bulls need these price areas to hold.
If support at each (3) breaks, bearish messages will be sent as small, mid and the transports have sent a bearish divergence message of late.