2 Worrying Technical Trends in Stocks

Posted by Richard Russell via Bespoke Investment, Pragmatic Capitalism

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sp 500

The Dow, S&P and Nasdaq are all back below their 50-day moving averages, note the analysts at Bespoke Investment Group who created the chart below.

sp 500

The indexes all broke sharply below their 50-day moving averages in mid-March, and then bounced to new highs for the year.

Regardless,  Richard Russell of Dow Theory Letters has some other technical indicators that suggest trouble for the market. On May 23rd Pragmatic Capitalism posted the following:

“In his most recent letter, Richard Russell of the Dow Theory Letters discussed why he is growing increasingly concerned about the state of the bull market.  Russell believes there is “technical deterioration” when looking under the hood at the market”:

“Late yesterday I was playing around with various formations on the stock averages, and, to my surprise, I came up with the pattern that you see below. Here is the Dow over a period of a decade. What we see here is a so-called “Broadening formation” or “megaphone pattern.” This pattern often appears towards the end of a bull market (as it did in 1919).”


“The broadening formation is made up of five successive reversals, four of which you see on the chart below. The rationale behind the it attempts to “find” the true trend. The broadening pattern represents an semi-hysterical market that first discounts one trend, then changes its mind and discounts an opposite trend.

At the fifth reversal (we’re not there yet) the item rallies to a new highs and then executes a final reversal prior to a collapse. Anything is possible where markets are concerned, and I’m wondering whether what we’re seeing now is a text-book example of a broadening formation. If so, I would expect the Dow to advance to a new high and then reverse violently to the downside.

Another Russell worry — Below we see a chart of the bullish PERCENTAGE of stocks on the NYSE. Here we see a picture of technical deterioration. The bullish percentage is now down to 66.67%, and it is below the March bullish percentage of 67%”

Nyse bullish percent index

Source: Richard Russell, author of the world’s longest-running investment letter, Dow Theory Letters went bullish on Gold below $300 in 2002,  has stayed bullish and remains L/T bullish to this day:

Richard Russell has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. Dow HERE to subscribe.