We have been waiting a long time for a top in the Great Rally of 2009, which represents neither a “recovery” nor a resumption of the old bull market.  Rather, it has been an upside correction of the bear market which began in October 2007.  That correction began in March with a series of bullish Candlestick signals, including the “Tokyo Express” pattern which completed on March 10 in the Russell 2000 and in other Indexes as well.

The Rally, across most of the major Indexes, has been a big tease.  More than once we have thought that it had reached its top and had begun a decline, only to be proven wrong.  Even so, we have known from its beginning in early March 2009 that it was always a question of “when” it would come to a top end, never “whether” it would do so.

Now we are beginning to think that the top may really have been made, at the high of Monday, November 16.

Here are a few clues which lead us to think so:

1)    The Russell 2000 came close to testing the underside of the trend line drawn from the March and July lows, and then strongly did so on November 16 – and fell back.

2)    The Candlestick pattern which is now forming in the Russell 2000 is an incipient Candlestick “Evening Star,” which is bearish.

3)    The ADX Indicator is in a “Pinch” with the Stochastics, a condition which foretells a decline in prices.

4)    The Stochastics Custom has already crossed down below the Stoch K and is about to cross the Stoch D.

The Pinch between ADX and the Stochastics are especially telling.  A condition such as this cannot long persist.  The two Indicators repel each other when they are close, with the inevitable result that Stoch K falls away and prices do, too.

William Kurtz

November 18, 2009

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