The weekend is a good time to look at weekly charts. So, here is a 5 year chart of the weakest stock index we follow, the Russell, small companies (with a market cap of about $20 - $50B). Let’s look at the situation back in 2015/16 and see how close we are to such a situation today, or not.
The first step in killing a bull market is that it must transition from trading above its 40 week average to trading below it. Often, as here, there is a period in which the market trades sideways just below the 40 avg and then it gives up hope of moving back over the 40 and moves lower. In the current situation, the Russell is gyrating around the 40 avg. It is currently still above it. To fall apart in a serious way, it must revert under the 40 and stay under it❗️ The second thing that has to happen to kill a bull market is that it has to trade under its 200 avg. In the current situation, the Russell is very far above its 200. However, as we saw last fall, this market fell a whopping 500 points just to get to the 200. That can happen again.
The third thing that has to happen to kill a bull market is that the decline in price has to be big enough to drag the 40 avg below the 200 in what is often referred to as a “death cross”. Note that, in 2016, the 40 week avg dipped down near the 200 but did not pierce it. Instead, the 40 curled back up. Once a market moves up over the 40, as in this case, a major rally phase can get under way. In fact, such a curl to the upside in the 40 in front of the 200 is one of my favorite trades on the long side. In the current situation, the large gyrations of the last couple of years has caused the 40 avg to bend over sharply. It has crossed below its 100 avg. This is not good behavior. However, it is still very far above its 200 avg. It will take a long period of gyrating action, years, to cause the moving avgs to squeeze together, let alone move into a bearish configuration - 200/100/40.
All in all, just the fact that the Russell has trailed the NDX and DOW so badly for months is bearish. If it moves under its 40 week avg and the MACD tips over (with the black line below the red one), how could you not be short, looking to retest the 200.