There were fresh weekly-scale top extensions in various US indices last week and in the MDax index of second-tier German companies. Here we show the Dow and MDax but there were similar signals in the S&P 500 and Russell 1000 too:
This is yet more evidence that we should not rely on the current strength in stocks and that the rally is vulnerable. As ever, top extensions do not always mean that a decline is imminent, merely that the current up-leg will soon end. A ‘top’ may then form that can then lead to eventual declines. ‘Tops’ are rarely a single event, but instead more often a process, so be careful here – some ‘churning’ is often the first sign that the process has begun.
