From Peter Elaides

So far, this time around, the end of the generational bull market which began in 1974 was initially signaled in April 1998, the first time a "Sign of the Bear" was seen in over a quarter of a century. That signal coincided almost exactly with a major top in the advance/decline line and an all-time high in the Value Line Composite Index (geometric) which has not been surpassed to this day, over seven years later.

What are we thinking? We are thinking, admittedly based on very sparse history, that this time around there will be multiple signals. We have already seen two signals, the one just mentioned and a second one in September 2000, coinciding almost exactly with the all-time high in the New York Composite Index which lasted for over four years.

We are speculating that the next top of importance and the next decline of real significance, the generational decline that we have yet to see following the generational bull market, will be signaled by another "Sign of the Bear".

We say that now even though we realize that we are nowhere close to getting such a signal. In fact recent market behavior has been just the opposite of the behavior that is required to generate a "Sign of the Bear" signal. Over the past five trading days, every single day has seen an advance/decline ratio either greater than 1.95 or smaller than 0.65. The initial requirement for a "Sign of the Bear" is to see at least 21 consecutive days with no daily advance/decline ratio greater than 1.95 or less than 0.65. As you can see, recent behavior has been exactly opposite the behavior required for a "Sign of the Bear."

We could be wrong about our speculation and, indeed, the market could begin a great decline from current levels, but as we have explained over the past few weeks such behavior would not be expected until the advance/decline line of the York Stock Exchange begins to act negatively in respect to the major indexes. We have not seen that occur as yet. All the above does not preclude a meaningful decline from these levels and that remains our expectation, at least through today's market action.