Every mistake has a halfway moment, a split second when it can be recalled and perhaps remedied — Pearl Buck

We have changed our market outlook from bullish to cautious for a number of reasons:

The major indexes were rejected at the 50-SMA resistance. As of today’s close, all three indexes (S&P500, Dow Jones & NASDAQ) all closed at May & June ‘s lows.

In particular, the S&P500 drops to fourth test of 1,040 support; If the S&P500 breaks support at 1,040, it may follow to the 1,007 area, matching a 38% retracement of the rally from the 2009 low; Also, the Dow Jones must hold support at 9,818; A break below this level will trigger the “sell signal” according to the Dow Theory where the primary trend is now down!
Below is a chart of the S&P500 courtesy from Reuters.

Furthermore, the S&P500 & Dow Jones are showing an ominous head-and-shoulder pattern & potential “death-cross” where the 50-sma crosses below the 200-sma.

An interesting article from Jeff Saut, Investment Strategist from Raymond James “suggested the equity markets were likely going to be in a trading range pattern similar to the 1966 – 1982 affair. Clearly, that is what has occurred over the last 10 years. Most recently, the 54% slide from The Dow’s October 2007 peak into its March 2009 low has been followed by a 70%+ rally that ended in April of this year. Subsequently, the senior index experienced it first double-digit decline since the March 2009 bottom, ushering in cries of “the bear market rally is over!” To me, however, all that’s transpired is another decline within the context of the broad trading range the Dow has been in since the turn of the century“; Below is a chart from Jeff Saut showing 13 rallies/declines of more than 20% from 1966 – 1982.

Below are the charts for the DJIA, SPX & NASDAQ.

SPX — prior support at 1,040

DJIA — prior support at 9,760