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Jeff Cooper: Is Stock Market Showing Signs of Exhaustion?


Several 90% down days often indicate that market bulls are getting tired.

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While many former highfliers, such as Baidu (NASDAQ:BIDU), Netflix (NASDAQ:NFLX), Qihoo 360 (NYSE:QIHU), and Workday (NYSE:WDAY), bounced hard yesterday (April 8) and look ripe for extensions, I think it is important to consider that the S&P 500 (INDEXSP:.INX) has not carved out a 90% down day. Multiple 90% down days within the context of an ongoing bull market often signify exhaustion.

Additionally, the S&P has not satisfied a turndown of its monthly swing chart. The presumption is that the strong reversal off the highs would perpetuate a turndown in the monthlies on trade below the March low at 1834.44. This would allow a cleaner snapshot of the position of the S&P.

While there is nothing to say that the S&P must turn its monthlies down, Friday's (April 4) key reversal day from all-time highs suggests that the S&P will do so, and that any rally prior to doing so is premature.

Of course, if the trend is turning down in earnest, a 90% down day could define a kick-off to the downside. Likewise, conspicuously poor price action following a turndown in the monthlies is an indication of a bearish trend.

Twitter: @JeffCooperLive

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No positions in stocks mentioned.

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