Bear Market Signal on Weekly Chart

After watching a strong downtrending bar develop, it is again time to explore the weekly chart; which is not a pretty sight (unless you have been short!).

Two weeks ago I wrote “At the July high the RSI (top panel) signaled a “sell” when it formed bearish divergence with price. Of interest is that this signal came at the RSI area which may signal the transition to a bear market – although a bear market would only be confirmed if the RSI can not hold the 40 level on the subsequent fall.” With this week’s decline the RSI has now signaled that a bear market is underway on this time frame. This is the first time that this has happened since the 2002 low.

Confirming this bear market view is the fact that price has now failed to find support at the long term moving average (the green line on the price chart). Previously this moving average had provided support throughout the five year bull market from 2002. Notice how that moving average actually became resistance this week.

Perhaps the final nail in the bull’s coffin was the fact that we also broke the November 2007 low. With this event I continue to maintain that there is little doubt that the market has completed a 1-2-3 (or perhaps more likely an a-b-c) move from the 2002 low.

For me, the weekly chart’s bear market signal plus the fact that both the monthly and weekly charts are on technical “sell” signals is of extreme importance. All of my long term investments will remain out of equities here.

Back to the daily chart tomorrow morning.