Remember bull market rallies? They were the equivalent of a free-for-all in a candy store that left you feeling elated. Bear market rallies are exactly the opposite. They’re like a mad dash for the last loaf of bread before a big winter snowstorm arrives. If you get that last loaf, you’re on top of the world. If you don’t, the frustration quickly sets in and takes a while to shake.
Well, last week, it seemed we were heading towards a nice rip to the upside on at least a couple of occasions. A market rally would have been very welcome, especially because the bulls have been struggling to string some momentum together since late August. While we had a solid win on Monday, the sellers came out in earnest the next day. Markets closed lower on Tuesday, and that was the end of a possible rally.
Then on Friday, markets seemed to be all about the upside after a big rally off the monthly lows on Thursday. However, a 25 handle gap up in the futures was sold down mercilessly and the internals were deteriorating all day long. It was really no surprise when the futures went negative. Also notable was the weakness in both the Nasdaq and Russell 2K due to deep losses in biotech. Though the Dow Industrials were shining all day long thanks to Nike, that stock was only one in a handful to close positive.
Welcome to bear market rallies. They tend to be strong but elusive; you can only benefit from a rally if you are willing to guess on the outcome. If you decided to go long last Thursday, you guessed right. But if you stayed long, you most likely gave it all back on Friday. This market is not giving you much chance to take a breath, and that signals an unhealthy market environment. Eventually all stocks will get hit, and they’ll get hit hard (if it hasn’t already happened).
Meanwhile, the Fed has been a huge boost for equity prices, but we have a policy shift on the horizon. If the committee continues to see inflationary expectations rise, they are likely to be more proactive with tighter policy – sooner rather than later. 
Take a look at the SPX chart. We can see several doji (Japanese for indecision) days this week. A doji day occurs when the price range is either high or low but the open and close prices remain about the same. Basically, it means buyers are scared to buy higher, and sellers are scared to sell lower.
So that begs the question: If prices are such a bargain now, as many would have you believe – some stocks have dropped in price by 20% or more and indices are around 8% off their highs – why is there so much indecision? Why are people not buying?
The price action is always your answer – always. Right now, it is poor, and former stock leaders are faltering. On Friday, it was the biotechs (see the IBB chart), all of which were taken down particularly hard across the board and are sitting at significantly lower levels. 
One bearish chart pattern that we keep seeing is the evening star, which was correctly noted by my good friend Rob Moreno several times over the past month. As Rob reminded us, this pattern shows a doji top that is confirmed the next day. It is a game changer – and I don’t say that lightly. At least three evening stars have already shown up in September, and another one may have occurred on September 25.
While you may look at the indices and believe this is just a short-lived correction, the action has me more concerned. Time is always a major factor, of course, but during the bull market prior corrections were short and sweet. We would often see a V-shaped bounce marked by a scary nosedive and a very sharp recovery. Corrections are not following that pattern anymore. Prices have remained lower for for well over a month, and though prices did rally sharply last week, they only met with strong resistance and resumed the downtrend. I suspect this will continue as our journey towards lower prices continues.
