US Stock Market: Decline In Progress

Since the price top earlier this month the S&P 500 Index (^GSPC) has declined about 13%. This has generated a PMO sell signal (PMO crossing down through its 10-EMA), and caused the 20-EMA to turn back down decisively before it was able to cross up through the 50-EMA. The PMO was overbought, so the crossover indicates that there is probably more downside ahead of us.

It appears that a short-term bottom is currently forming from which a short reaction rally could launch. This is a common result of PMO crossovers, and the rally normally pulls the PMO back up toward its 10-EMA. On the chart you can see a similar occurrence in September. After these brief bounces, the price decline usually continues.

The next chart shows how our medium-term price, breadth, and volume indicators have made overbought tops, and are now headed toward the oversold side of the range. The definite impression that I get is that there is a lot more price decline ahead of us.

Bottom Line: While the bulls currently appear to be putting up a pretty good fight against a further price decline, and may even be able to spark a rally, decisive tops have been established, both in price and internals. A brief rally is possible, but following that, I expect that the November lows will be challenged.

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