2013 has been unkind to bears as the market has seen a momentous move to historic highs, but now that appears over with. This pullback is different than the sharp 4 day pullback that occurred in late June. Why? Well if you say, which I do, that this pullback started last Thursday then that was 7 days removed from the all time high compared to the June 20th pullback which came 19 days removed from an all time high. As I’ll show you though, that’s not the only reason to believe we’re in the midst of a broader breakdown in the market.
SPY is on pace for its first 3 week losing streak since May 2012, a stretch of more than 14 months. That 3 week losing streak in May 2012 was SPY’s first in 8 months, but to find a stretch in which SPY went more than 12 months between 3 week losing streaks you’d have to go back to 2007. In July 2007, SPY suffered a 3 week losing streak for the first time June 2006. I don’t have to tell you what happened after July 2007.
Want another scary statistic? The Dow Jones just suffered its first 6 day losing streak since (drum roll please…) May of 2012, falling 4.9% from its most recent all time high. The 6 day losing streak in May of 2012 was 4.4%, so there’s better downside momentum when comparing the two. Moreover, that 6 day losing streak in the Dow last year preceded a 3 week 6.3% drop in the Dow in which it fell 13 out of 16 days. A similar drop would have us looking at Dow 14,000 which would make sense given the consolidation that occurred around that level in February of this past year.
Ok, so I’ve cited 3 reasons as to why I believe the breakdown has started, but what’s the big deal? We’ve seen this before. The market looks weak and then just as everyone is getting short it rips faces off on a reversal rally. Why am I ready to be bearish now? Look at our SPY volume, I warned on several occasions this past year that the pullback was going to start when we started pulling back on low volume and that’s exactly what is happening. $164 is the only thing in the way of SPY and a visit to the $150′s. A move back above $166 is needed to set up a potential bottom.
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