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There is a lifecycle of a trend. And breaking it down into five stages might look something like this:

Stage 1: Accumulation
Stage 2: Denial
Stage 3: Conviction
Stage 4: Doubt
Stage 5: Overshoot

Using the S&P 500, I think we may be nearing Stage 4: Doubt …

A trend’s lifecycle certinly doesn’t have to break down into five nice, neat stages. But based on what we’ve seen from this trend since 2009, it appears as though we’re nearing the start of Stage 4: Doubt. (I’ve drawn in an alternate scenario in red that suggests what coming action would look like if we’re actually already in Stage 5: Overshoot. But that doesn’t appear as likely at this point.)

But is there anything else to suggest Stage 3: Conviction is coming to an end?

Yes. I would argue there is a litany of reasons. In fact, we’re preparing this long list of reasons for members of our Global Investor trading newsletter. And it will be published later today. If you’re interested in staying plugged in to what’s driving markets, and if you’re interested in explicit ETF trading ideas, then I suggest you snag yourself an early Christmas present.

Anyway, the reasons span from deflation in Europe to contrarian signals in key sentiment guages. But because I’m a nice guy, I’ll give you reason #1 right now …

Reason #1: An ENDING expanding diagonal showing up on Dow Industrials

The trend described above is going on five years running. And as I said, the lifecycle of a trend doesn’t always breakdown into five tidy stages. So let’s zoom in a bit for confirmation that the technical setup may be turning bearish for US equity averages.

I point you to the Dow Industrials:

A review of Elliott Wave Principle by Frost & Prechter reminded me of diagonals, particularly ending expanding diagonals. That’s what I’ve drawn in on the chart above. It suggests the Dow has exhausted its upside and is due for a significant retracement.

That’s all for now.

If you want the rest of the reasons we’re nearing Stage 4: Doubt, then I encourage you to have your mind blown with a Global Investor subscription. [And don’t forget:ClearPoint can easily and efficiently execute any of our trading newsletters.]

Have a great weekend.