Since June of last year, we have been monitoring the development of a massive topping formation in the stock market that signals the likely termination of the speculative cyclical bull market that began in 2009.” One week ago, we observed that the developing cyclical top had entered an important phase and noted that a weekly close well below critical congestion support in the 1,880 area on the S&P 500 index would essentially confirm the start of a new bear market. This week, the S&P 500 index returned to the 1,880 area and continued to test that important support level.

However, the NASDAQ composite and NASDAQ 100 indices, which had been forming massive topping patterns of their own, were unable to hold at their corresponding critical support levels and experienced major breakdowns.

The long-term breakdowns of these topping formations have essentially confirmed the start of a cyclical bear market in the technology sector. Given the character of the preceding distribution pattern, the initial downside target for the developing cyclical downtrend is the 4,000 area on the NASDAQ composite, and it is likely that this level will be tested relatively quickly, probably sometime during the next few weeks.

Since the NASDAQ bubble had become the most speculative of all the major stock market indices, it is not unusual that it would break down first. Additionally, the negative divergence that now exists between the NASDAQ and the S&P 500 index suggests that the broad market will likely follow suit very soon. The monthly view of the S&P 500 index displays a classic long-term reversal that is beginning to gain downward momentum.

It is often said that “they don’t ring a bell” when major tops or bottoms form in the stock market. However, the judicious study of market behavior through chart analysis does provide clear signals when long-term turning points are in place. The NASDAQ has clearly signaled that a bear market is underway, and the S&P 500 index will likely experience a similar breakdown very soon.