Wednesday, December 15, 2010

Evidence For A Top Continues To Build

Two key breadth indexes are pointing to a top in the very near future.  Notice how the Absolute Breadth index has marked or preceded most of the major tops for several years.  Once again it has returned to an extremely low level that often occurs at or up to a couple of weeks before a significan top. 

The High Low Logic index shows when there is a divergence in breadth with a large number of new lows occuring with new highs as it rises above the 2% level.  It now stands at 1.93%.  I have highlighted previous instances where the 2% level was hit that resulted in a correction or selloff.  Notice that once the 2% level is hit, the index tends to fall with the market.  Bull market conditions are said to exist when the index falls back below 1%.  A sell warning occurs when the index rises from below to above 1%, which it did on November 5 and December 10.

The market may continue higher into the end of the year, but I think there is no doubt we are in a dangerous market period.  It is truly amazing how easily the drumbeat for a continuation of the rally into 2011 has increased in volume over the last few weeks.  Trader beware.

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