Three Main US Canaries Are All On The Bottom of the Bird Cage

Its now official, the S&P 500, DJIA and DJTA Indexes have all broken below their November 21, 2008 lows. A clear Dow Theory confirmation of a continued US Bear Market, at least for awhile longer. The Nasdaq has yet to do so but I consider it a secondary index.

The Canadian TSX Composite Index is teetering on the edge of doing the same thing. On February 24th it went below its November low during mid-day trading. So there is little hope that Canada will avoid more downside as well.

We should expect the bear market to retrace something more than the ~50 percent loss to date. This bear market is now officially the second largest market loss since 1929-1932 (-89%).

Dow Trend Confirmation Signals

With respect to the severity of the current bear market, I agree with anyone who thinks that a much deeper bear market, like the one in 1929 (-89 %) is just one possibility.

However, there is another worse case scenario we should keep in mind. It is the possibility of a long duration, more or less sideways bear market, similar to the 1968 to 1983 time period. A lump sum held in the stock market through that entire 15 year period would have earned 0 percent in capital gains.

In fact, we may already be in one of those sideways market periods. It may have begun back in 2000. More so for the US than in Canada. Many stocks started their bear in 2000. Those stocks have already been in a bear market for the last 9 years.

In the short term, I continue to see a high probability of at least some additional downside below the November lows for all N.A. indexes. Likely world wide.

My expectation is based in part on the fact that the DJIA, the DJTA and the TSX Capped Financials and the TSX 60 (as of today) Indexes have all broken below their November lows. In short, we have an abundance of evidence to demonstrate the Dow Theory Trend Continuation signal has been given loud and clear.

Some people continue to hope for a large bear rally at this time. Unfortunately I see little opportunity for this to happen. In fact, a large bear rally may not even happen during this bear market if it goes much deeper. That pattern is only one possible bear scenario...one leg down one leg up then a final leg down.

If a bear rally does occur, I see it starting at some lower level, not starting from the Nov. lows, and not now.

Dow Confirmation Close at Hand

I mentioned earlier that the Dow Transports had broken below its November low. I now see that the sister index, the DJ Industrial Average is very close to also breaking below its Nov. low. It could happen tomorrow. If this occurs...it will be a textbook case of Dow Theory confirming a continuation of the downtrend below the November lows.

The S&P 500 and the Nasdaq are still some distance above their Nov. lows but the number of canaries is growing. Since the Canadian TSX Capped Financials Index has already gone below its Nov. low the other Canadian Indexes will most likely follow as well.

A Dow Bear Trend Continuation Confirmation may be newsworthy enough to make the headlines.

This is additional technical evidence to support my expectation of the November lows being broken for all indexes.