Our Blog started to recommend short positions on select stock market sectors starting on Jan 16 through Jan 23, because we believed that a shift was taking place that would reverse existing trends that have been in place since 2011, and possibly even 2009. Our premise finally starts being acknowledged by a few at the beginning of February, although a lot of analysts are still suggesting the bull market will continue after a required period of correction. We beg to differ and we will use the three popular Dow charts – Industrials, Transports and Utilities – to demonstrate our thoughts on this matter.

First, the Dow Jones Industrials in the weekly chart below has developed a large bearish wedge pattern (as have most other market indexes) beginning back in 2009 from where this cyclical bull market began. You will note that the trendline from that 2009 bottom has been broken during the recent decline, as well as a minor horizontal support level at 15,800, that now becomes resistance. More importantly, the underlying momentum in the second panel of the chart failed to confirm the Dec 2013 new high, and it formed a head and shoulders top pattern that has now broken below the red dotted signal neckline. This implies that the Dow Industrials will move down to the next support neckline on the price chart, which currently sits around the 14,700 level. After that, I would expect at least 3~4 months of consolidation as we develop a right shoulder of what looks like will be another head and shoulders pattern that takes us even lower.

(Click on images to enlarge)

….two more charts & commentary HERE