Technical Signs of a Top Forming

Phoenix Capital Research's picture

This last push higher in the S&P 500 and NASDAQ feels like a major top forming.


For certain the move is being pushed by fewer and fewer companies. Meanwhile, the NYSE, the largest US stock exchange, has been seesawing for a year now:



Regarding the other indices, ever since stocks began their near vertical climb in late 2012, the 126-day moving average (DMA) has been of critical import from a momentum perspective.


Indeed, the only time the S&P 500 has broken below this was during the October 2014 collapse when the financial world briefly realized that the global economy was once again contracting… DESPITE the Fed and other Central Banks having spent over $11 trillion attempting to prop it up.



Since that time, stocks have seesawed back and forth between worrying of economic weakness and hoping for more Central Bank monetary action. We’ve visited the 126-DMA no less than five times in the span of four months.



Meanwhile, the Dow Transport Index, which is far more closely associated with the real economy, has in fact already broken below the 126-DMA again.



This is particularly important because it was the Transportation index that peaked out first in 2007, collapsing long before the S&P 500 caught on that the economy was weakening:



In short:


1)   Momentum is waning.

2)   Fewer and fewer stocks are participating in the rally.

3)   Economically sensitive indices are already rolling over.


All of these are signs of a top forming.


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Best Regards

Phoenix Capital Research




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economessed's picture

Technical analysis became worthless when the markets became fully dis-associated with human behavior back in 2008.  The world has moved-on.  Technical analysis is to modern markets as vacuum tube testers are to HD TV's -- there is historical association between each, but that's the extent of the relationship.

LawsofPhysics's picture

"Technically" there is no mechanism for true price discovery, so fuck right off.

prefan4200's picture

I've looked at more technical charts over the years than I care to think about, so maybe I'm losing it, but I don't see anything in the first 4 of the 5 charts shown that support the contention that a top is forming.  On the contrary, the first 4 look as though they are short-term dips in a strong upward trend and, if they support anything, it is that now may be the time to buy the short-term dip.  I agree with the author's contention that a top is forming, but these charts don't really support that contention IMO.

fremannx's picture

A top has definitely formed. It is an obvious bubble and bubbles always burst, most quite violently. This one is perhaps the biggest in history.

mtl4's picture

LOL, what a about adding the bottom portion to that rising wedge and call it what it is.

KnuckleDragger-X's picture

It looks like they are trying to push the markets back up by force today but it's not working out very well.....

corporatewhore's picture

sooner or later someone will be right

Clueless Economist's picture

Graham, you have called tops at S&P 750, 1000, 1250, 1500, 1750, and now 2100.  Exactly why should I believe you now?  You have shamelessly cost folks major $ with your sell stocks/buy gold mantra.

Rot in Hades Mr Summers.

centerline's picture

Short term top only.  Entry point coming up soon for the next leg up. 

swass's picture

Wouldn't hold past mid-year or maybe August.  Storm clouds are on the horizon and this time they may actually arrive.  I am watching a number of charts that are pointing to a new high again within the next few months but then I want to be on my guard for something big.

TruthInSunshine's picture

This Phoenix Capital dude is a real fucking wanker, re-posting the same bullshit every day for the last fucking 6 years.

swass's picture

To be fair, most of their observations are right.  The fact is, most technicians and fundamental investors will admit that the market is being artificially priced right now and so many historical measures that would point to a crash are put on hold for now, or at least allowed to move to greater extremes.  That said, there is precident for what is happening in the context of a mania, where seemingly parabolic rises occur and 17 year old hedge fund managers thrive.