Something is wrong in the market....

We got another rollercoasting week, with up and down in a wide range that has not been seen for months. The volatility was especially in a huge gyration. But as I predicted in my premarket note to my chat group this morning, I expected a Wonder Rally with crashing volatility. Here is what I said this morning:   "The overall tone of the market has turned bearish but in the very near term it is very oversold and I think we will see a quick rebound at any minute, probably a day or two of Wonder Rally. Looking for VIX to go down in the next few sessions!" It turns out to be a precise call. My bearish bet for VXX has yielded a great quick return for me. No complaints!

But I don't expect this rally will last long. More likely we will soon see another plunge more severe than what we saw early this week. Be ready!

For now, let me share a good analysis about the overall market conditions. While I don't believe the decade long bull market has already ended, I do feel we are very close to the ultimate top. My gut feeling tells me that the unbelievably resilient bullish movements of the market may be setting up a stage for a big black swan to fly out. I don't know when and of course what, but I think it is better to be prepared for something unthinkable right now. 

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Let's look at the internals to see what's going on "beneath the hood" in the financial system.

High yield credit (junk bonds) has broken below its 50-DMA. This chart is looking uglier and uglier. The door is open to a potential drop to the 200-DMA here. And remember, high yield credit usually leads stocks, so if that starts to happen, it's likely stocks will follow. Again, this is very worrisome.

Breadth has also broken down in a big way, falling below its 50-DMA. Here again this is a VERY ugly chart. We need breadth to turn upwards again soon or it's going to the 200-DMA. This like high yields credit, is telling us "something bad is happening" within the financial system.

Put simply, market internals are flashing warnings to us. But the market is holding up for now. So, to summate, the market is beginning to "do something wrong." But it has yet to confirm this.

So now is the time to be more cautious than usual. We have yet to get confirmation that the market is in serious trouble. All we have at the moment are troubling internals and stocks breaking down modestly.

Put another way, it is NOT time to panic, nor is it time to get bearish. It is best to watch and wait and let the market show us what is going on.

In terms of the BIG PICTURE for this bull market, the "line in the sand" is the 50-month moving average (MMA). When stocks take out that line on a monthly basis and fail to reclaim it the following month, the bull market is over.