First, we will take a look at the three major indexes.
All three indexes had a rounding top, a bearish sign, before the drop in August. None of the indexes have made new highs since their peaks in mid-July, this would imply weakness in the markets. When you look at the volume, you can see that there has been a lot more stocks changing hands, but there is little movement in either direction. That could tell you that the market is waiting. People are waiting to see if the bull will continue, or will the bear win the fight.We could think that the bulls are stronger, because the prices came back after the drop, but that may be a mistake as the comeback has weakened, and prices have failed to reach a new high.
Now let's take a look at the indicators. Looking at the MACD, you can see a bearish sign. as the MACD did not make a new peak, next to the previous peak, as price has. The RSI has that same issue, and shows a bearish sign as well.
I believe that a bear is coming, and it will come in one of two ways. The price will continue to show weakness, and the overall trend will continue down. As for the other way, I think the price could get close to reaching its peak, forming a double top, before prices will drop again.
Now we will take a look at the transportation average, which is used as a leading indicator in Dow theory.
The transportation average is trending downwards, with indicators showing more downward pressure. There has been a rally that coincides with the rally that came after the August sell-off, but as you can see there is still weakness.
I believe the market is weak. It is hard to find a reason to buy stock, as earnings were weaker, and demand seems to be weakening as well. I think profit taking has occurred in the August drop, and now the current rally is a weak attempt to keep the bull going. Very few stocks are propelling these indexes higher. The Dow only has five or six stocks pushing it back up. Also, when you look at the industry leaders by market cap, only a few stocks are making new highs, the rest have been falling since before the index peaks, and a lot are in confirmed bear trends. The best strategy may be to hold cash and wait for a trend confirmation.
