Storm Warning: The End of the Short Term Rising Trend Has Been Confirmed

Dow Jones Industrials Average (DJIA)

Tuesday, August 13, 2013

We’ve warned about a broad market downturn for weeks now.

In this past Saturday’s Bottarelli Research LEAPS, we told readers that “we’ve got the red warning flags out, and are standing by to run them up the pole.”

For awhile, we were lone voices in the wilderness – but Wall Street is finally coming around. Bull and Bear Partners’ Jack Bouroudjian is now “the most bearish he has ever been on the U.S. stock market.”

According to Bouroudjian: “Equities have historically traded at a discount to GDP except for two times in the last 50 years. In the late 1990’s we traded at 148 percent over GDP, and in 2007 we traded at 118 percent over. Unfortunately, both times were followed by a serious correction. We are now at 110 percent.”

Bouroudjian concludes that: “The market is overvalued and we’ve hit an inflection point. Unless we see some real strong growth numbers coming out of the economy, I’m looking at a 10 percent correction between now and October. It’s time to be very defensive.”

DJIA 081313

Bottarelli Research tip: All the Dow Jones Industrials (DJIA) signals are finally lining up!

On the upper chart, the second red candle in seven weeks has broken the back of the rising trend,
Volume is in a parabolic downturn as traders abandon stocks,
MACD is forming up a Sellers Cross,
And the lagging Accumulation/Distribution oscillator has finally flipped down to indicate a share sell off.

We see a strong chance that the Dow will drop back to support at the 38.2% retracement marker at 14,429.75. However, we should point out that Bouroudjian’s -10% scenario would see the Dow hit the 50% retracement marker at 14,047.16.

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