The big cap Dow Industrials will be giving a bear market trading signal today.

The Dow's 50-day simple moving average will be falling below its 200-day. The happened for the S&P 500 last Friday, July 2nd. While this has not occurred for the Russell 2000 yet, the index simply confirmed small caps were already in a bear market with a close-to-close loss of 20.5% as of yesterday, July 6th. This puts it in a bear market by the strictest definition.
 
Trading on the U.S. markets started out with a strong bullish bias in the morning, but as the day progressed the rally lost its momentum. This is a trading pattern typical of bear markets - strong in the morning, weaker toward the close. While the Dow was up as much as 170 points early on, by around 3PM it was in negative territory like all the other major stock indices. A last minute rally pushed the Dow, S&P 500 and Nasdaq into positive territory. The Russell 2000 closed down 1.5% however. The Dow managed to close up 57 points, the S&P 500 5 points and the Nasdaq 2 points - not exactly a sterling performance after two weeks of severe losses.
 
The 50-day moving averages for all the indices are dropping rapidly. The 200-day's are still moving up, but just barely. They should begin to move down soon to complete the bear market picture. The 50-day almost crossed the 200-day on the Dow yesterday, but missed by coming in at 10,361.77 versus the 200-day's 10,360.60. There is no doubt that the cross will take place today.
 
It makes sense that small caps should enter a bear market first since they are more volatile and risky. The big cap Dow usually enters bear market territory last because it consists of what are perceived to be the safest stocks. The Nasdaq should be next to follow the Russell 2000 into the jaws of the bear, but it's trading signal is not likely to happen until the end of this week at the earliest. Only one bad trading day though could provide it with a bear market loss. It has already declined 18.7% peak to trough. So the Nasdaq could actually be in a bear market before it gives its trading signal, just like the Russell 2000.
 
The market has provided investors with a number of clues, indications, and signals that the bull market it over and we have entered a rough patch. About the only thing that is missing so far is someone putting up a giant neon sign in Times Square that flashes 'Stocks are in a Bear Market'. If you need that much notice, perhaps you should try paying more attention.
 
Disclosure: None
 
Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21