Larry Pesavento: ‘Past experience indicates that bold predictions on the front page of financial publications usually indicate a major shift in market direction, albeit in the opposite direction. This week’s cover of Barron’s magazine features Dow 15,000. This number may indeed come to pass, but with so many patterns that are still showing signs of the market topping in the near term, it is difficult for me to believe this will happen before a major correction takes place.
With this article is a chart of the McClellan oscillator, which points to the breadth of the market deteriorating badly. The market has been losing considerable breadth since late December. For those unfamiliar with the McClellan oscillator, it is a market breadth indicator derived through analysis of the New York Stock Exchange index and evaluates the rate of money entering or leaving the market. In other words, it can be interpreted as an indicator for overbought or oversold conditions in the market. The index was developed by Sherman McClellan back in the late 60’s and relies on an exponential moving average of the difference between advancing issues (stocks gaining in value) and declining issues (those that are falling) over 39- and 19-day periods.
Also, I have featured a chart from Doug Katz. It points out that two of the big “Perma Bears” (Drs. David Rosenberg and Nouriel Roubini) tend to make incorrect assessments of the market at critical turning points in the market. Incidentally, we now have both of these gentlemen capitulating to the bullish camp. Meanwhile, the NYSE index has also just completed a bearish Gartley pattern at the 786 retracement. The Nasdaq, which has been the market leader by far, has completed a bearish butterfly pattern. The VIX volatility index is still very oversold as it drifts back into the area of support from many months ago.
Thus, the market is showing just about every possible signal to move down that I can see. But I have also been saying this since late January. However, although the Nasdaq has motored into higher territory, the major market hasn’t gone up much during this time. Moreover, these bearish markets continue to be seen in the foreign markets e.g. Germany, U.K., and Asia.’