This week wasn’t a good week for my core market health indicators. My measures of market quality, trend, and strength all fell even as the market rallied on Thursday and Friday. This isn’t what the bulls want to see for a sustained rally. So far, this is looking like a bear market rally rather than the start of a new intermediate or long term uptrend.

If we have entered a bear market (Dow Theory hasn’t confirmed a bear market yet) then bear market rules will apply to how I read various indicators. Elder Impulse for the S&P 500 Index on a weekly chart is a good example. Notice that during a bull market a blue bar that follows a red bar is usually a good time to buy the dip. However, since the top in May a blue bar that follows a red bar gives us little useful information. Even though Dow Theory hasn’t confirmed a bear market yet, I believe that the odds are very high that we’ll likely see a long term down trend and much lower prices before the market makes new all time highs. As a result, expect rallies to be contained and big price moves to the downside to come out of nowhere.