My outlook for the economy and the stock market has steadily and significantly deteriorated since March 2010. That’s when monetary indicators started to signal renewed emerging stress in the financial system, and leading economic indicators started heading south. The stock market was richly valued in terms of dividend yield and price/earnings ratios. And I predicted a topping formation followed by a new bear market. Since then the market has moved nowhere.
Price movement since last October looks like a well-formed topping formation. Longer term trend-following instruments like the 200-day moving average have turned sideways, thus confirming the topping process.
The Stock Market Is on the Verge of a Break Down
The most likely scenario now is a breakout below the lower boundaries of this topping formation — below the 1,010 level the S&P 500 reached on July 1. Such a move would definitely make clear that April’s high was THE high for the huge bear market rally that started in March 2009. (more)
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