Why The Dow Is Likely To Follow The NASDAQ Down

Visually - here is the answer.

This possibility seems especially true in the context of the COMPQ's reversing 2013 uptrend. After such a clear breach, it is less common to see the buyers step up and recapture the uptrend and more common to see it give way to sloppy sideways chop that resolves down on 10 to 15 volatile - even violent - trading sessions as the sellers take control and the buyers to disappear.

Perhaps the sideways trend does yield to some sort of last gasp move back up toward the top of the trading range before what will be a rather dramatic decline, but this seems less likely at least right now and, in part, due to the Dow's likely "catch-up" to the COMPQ.

Less technically speaking, it simply feels as though there is more pent-up selling pressure to come in the near-term before any potential bounce up could intervene in what is likely to be at least a 15-20% correction scenario in both the Dow and the Nasdaq Composite.

In fact, this sense of lurking sellers who are simply waiting to push stocks down hard is strong enough that it is challenging - at this time - to see this sort of a potential bounce. This - and the Dow playing bearish catch-up to the Nasdaq Composite - is supported by this year's rally in bonds with the 10-year yield closer to 2.60% from the 3.00% level that marked the beginning of this year. 

In other words, money is rotating out of the risk high-flying, growth stocks and going into the safety of bonds and cash rather than the relative "safety" of large cap Dow names.

It is for all of these reasons that the Dow is likely to follow the Nasdaq down.

As always, thank you for taking the time to catch up on my thinking.

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Courtesy of http://www.peaktheories.com