Over the past week all of our core market health indicators fell slightly. The volatility and large range days in the market didn’t do a lot of damage. The one exception is our core measures of risk. They fell quite a bit and will likely go negative if the market continues to fall next week. On the other hand our measures of trend want to go positive, but just can’t get any upward momentum. If the market can rally next week then they will likely go positive. That puts us at a pivot point between increasing risk or a continued up trend.

Another sign that the market is at a critical point comes from Trade Followers. Their algorithm that captures support and resistance levels for the S&P 500 Index (SPX) puts 2040 as a must hold level. If that level breaks then 2020 is the next level of support, but minor in nature. There is very little support below that level which sets up the potential for a cascade lower as traders are taken by surprise.

New Highs and New Lows on NYSE have both been declining since last October. This illustrates not only the damage done to high fliers during this year’s consolidation, but the strength of badly beaten up issues as well. Rotation is occurring from stocks making news highs into stocks that made new lows late last year. Keep an eye on this chart for an increase in new lows for warning that beaten up stocks are resuming their down trends.

One last thing that is at a critical level is a monthly chart of SPX with MACD. It is on the verge of a long term sell signal. This is a pretty good “top” indicator, however it does have short whipsaws on occasion. Momentum on the other hand is still fairly strong, but falling. The message from these indicators is that the market can’t go straight up forever. At some point it needs to pause and right now the probability for a decent correction is rising.

Warning signs are picking up. Our core measures of risk are close to going negative, 2040 on SPX is at a critical support level, new highs and lows are ready to break one way or the other, and long term momentum indicators are close to warning. All together this puts the market at a pivot point where it must hold or we’re probably headed much lower.