Nice thoughts here from the always informative Richard Russell:

Market Thoughts. The stock market is traveling on thin ice. I have four reasons why I have come to that conclusion.

(1) A primary bear market is in force. Nothing has occurred under Dow Theory to indicate that the great primary trend of the stock market and the economy is other than bearish. The direction of the primary trend over-rides all other considerations. The primary trend cannot be manipulated by the government or any other force.

(2) As subscribers must know by now, the Transportation Average has refused to confirm the series of new highs in the D-J Industrial Average. It’s been over a month that the Transport non-confirmation has been in effect. I take this as being very serious, since few analysts have taken note of this non-confirmation. I also take it as particularly bearish because the stock market, under Dow Theory, is looking shaky in the face of the widespread optimism (“green shoots”) that has enveloped the nation. When the market does not agree with the prevailing sentiment, my instinct for danger flares up, and I start looking for the exits.

(3) The Dow is in a “head-and-shoulders” top formation, as detailed on yesterday’s site. The Dow closed yesterday at 8447. This was 147 points above the critical support level of the H&S pattern which comes in at Dow 8300. A decisive close below 8300 would complete the head-and-shoulders top and probably put a “finish” to the current bear market rally.

(4) At yesterday’s close, Lowry’s Buying Power Index was only 8 points above 96, which was its level at the March 9 low. In other words, Buying Power has faded badly over recent weeks. The fact that as of June 30, the Buying Power Index was only slightly above its March 9 level is almost shocking. Technically, the stock market is on dangerous ground.

Source: Dow Theory Letters