Editor's Note: This article was originally published in John Murphy's Market Message on Thursday, October 18th at 5:00pm ET.
My last two messages spelled out a lot of technical reasons that are bearish for the stock market, and increase the odds that the nine-year bull run is ending. Besides the heavy selling that's taken place during October, my weekend message showed a number of serious negative divergences showing up on the market's weekly and monthly charts. Yesterday's message included the Sector Rotation Model which showed that rotation into consumer staples, utilities, and healthcare stocks usually occur near the end of major bull markets. And money is rotating there. While money is flowing out of economically-sensitive groups like consumer discretionary and industrial stocks, as well as growth-oriented technology. And those are the very groups leading this month's stock retreat. We can also see that negative rotation taking place within the three Dow Averages. Chart 1 shows the Dow Jones Industrial Average continuing to threaten its 200-day average. That's a very important test. The bigger problem lies with the Dow Transports which have already fallen below their 200-day line (see Chart 2).
Chart 1
Chart 2
