U.S. Stock Market Turning Point?

This past Friday, February 1^st, the U.S. stock market posted a 5-year recovery high with levels not witnessed since October 2007 as measured by most major indices.

The following closing prices yesterday are noteworthy:

S&P 500 Index                                      1513.17        

Dow Jones Industrial Average               14009.79

NASDAQ Composite Index                   3179.10

Russell 2000 Index                                   911.20

These compare to the following all-time record highs:

S&P 500 Index                                     1576.10          October, 2007.

DJIA                                                    14197.05         October 2007.

NASDAQ Composite                            5132.52         March 2000.

Russell 2000 Index                                   912.75         February 2013.

Given that the Russell 2000 Index and the Dow Jones Transportation Index both posted record highs last week, are there any significant “non-confirmations” of the current bullish trend which may point to an imminent downside reversal?

The Dow Jones Industrials is within 1.34% of its all-time record, and the S&P 500 Index is within 4.12% of its all-time record. Among major indices, only the NASDAQ Composite has no shot of posting a new all-time high anytime soon. We could consider the New York Composite Index as one possible example of a non-confirmation given the fact that it is now about 15.90% away from its record high as posted in October 2007, but this bearish example just doesn’t look that compelling to me.

If most of the major stock indices are “in sync” on the upside, then where is the bearish case?

With the DJIA now above 14,000, can we expect 15,000 as the next stop? Or is a reversal to 13,000 more likely? Of course, no one really knows the answer, but I think 13,000 is more likely, and I also believe that a downturn in the broader market is imminent. While NO sell signals have been triggered as yet in any major stock indices within my proprietary computer-based trading system, the cautionary signs are everywhere now.

After a monumental upside run, Homebuilder stocks posted sharp reversals yesterday (RYL, LEN, TOL, MTH). Recent favorites like Yahoo and Amazon have been especially weak recently (post earnings price action). And leadership from the “Cloud-based” tech stocks finally looks fragile to me as reflected in NetSuite’s (N) dramatic earnings-related blow-off top yesterday morning. This explosive stock ended the day yesterday almost 9% below its record setting morning intra-day high.

Bottom Line: A 10% correction in the overall market is expected to begin very soon!