Getting Technical: "Fat Lady Is About to Sing, According to the Charts"

The Helga-horns imagery is from Barron's, not me.
From Barron's Getting Technical column, Oct. 8, 1014:

Today’s rally doesn’t erase the bearish signals from recent market action, including small stock weakness.

“It ain’t over till the fat lady sings” applies to technical analysis just as well as it applies to basketball and opera. No matter how bad we think market conditions are, until it actually breaks down all we have is a warning. As the story goes, when the fat lady’s song is over, the curtain falls and the show, or bull market, is over.

With the events over the past few days, the fat lady seems to be on the stage starting her aria. 

Last week, I wrote here that one of the most important technical features in the market broke to the downside (see Getting Technical, “Will Stocks Suffer Death By a Thousand Cuts?,” Oct. 1). The Standard & Poor’s 500 index moved below the bull market trendline drawn from the key November 2012 low.

It was a bearish event, but in the age of the Federal Reserve’s bond buying and low interest-rate programs, breakdowns over the past few years were immediately erased. Last Friday’s September jobs report and ensuing rally once again looked to trap the bears and send the market back up.

Despite today’s Fed-induced rally, this time the reality was different. Action this week reversed that rally, and sent the market to fresh closing lows. The breakdown was confirmed (see Chart 1).

Chart 1

Standard & Poor’s 500

Chart watchers noted other factors, including resistance at the 50-day average keeping a lid on Friday’s rally. And even as the market gained last week on economic news, the number of stocks hitting new 52-week lows remained quite high. The rally, though impressive on the charts, was far from inclusive. The rising tide did not raise all boats.

The Nasdaq did not fare much better, although it has not broken its major trendline. But it, too, turned lower at its 50-day average, and Wednesday it set a lower intraday low for the current decline. 

Bulls rightly question whether this is a full-market breakdown because the S&P 500 and Nasdaq are both above their 200-day averages. Whereas the 50-day average is the proxy for the short-term trend, the 200-day is the proxy for the long-term trend. Big stocks indexes, therefore, still have an argument that they have not broken down....MORE

 Fat Lady Is About to Sing, According to the Charts - Barron's