Algorithmic trading system has signaled that the US stock market has reached a critical turning point.
The past two years we see the stock market steadily climb with low volatility. All investors and traders have had to do is simply buy the pullbacks within the stock market and riding the market to new highs. While this has worked out very well to date, most will be in for a big surprise when the market trend reverses.
As of today, the AlgoTrades algorithmic trading system which uses momentum, cycles, volume flows and advanced filters signaled that the market is now in a down trend.
The algo trading system identifies intermediate trends within the market which his idea for swing traders, or active investors looking to get the most of out the market and their capital. These trends typically last 3-12 weeks in length, meaning the US stock market is in for a wild ride.
The big question is if this is just another correction within the bull market, or the start of something much larger. What appears to be forming is a major topping phase (stage 3) in the Russell 2000 index. If this is the case we will see  a spike in fear that sends to vix (fear index) also known as the volatility index sky rocketing into the 30s and possibly even 40s, similar to what we say in 2011.
In 2011 the Russell 2000 index formed the same topping pattern we have today. This pattern led to a 30% drop in the index within a few weeks. Will it be the same or is this time the start of an actual bear market?
With the stock market being so frothy and in rally mode for several years. We are due for a major bear market to cleanse the market of greed.
The good thing is that the Russell 2000 is a leading index. Meaning it typically leads the US stock market, which is the SP500, & DOW. We need to watch carefully as the Russell 2000 tests this critical support level of the head and shoulders topping pattern it has formed. A breakdown will trigger mass panic and selling in the financial market.
