In analyzing the development of price in any market or index, it is important to understand the strength or weakness of that trend. In September of last year and in May of this year, I suggested both times the internal strength of the rally was weak and continuing to weaken. Both of those led to significant selloffs.
It is only logical, when the internals of a market or index begin to weaken, it is only a matter of time before price will correct. While there is always a smaller percentage of time the internals will correct to price, it is typically a result of a news event. With the Fed announcement out of the way and a variety of possible bad news announcements, caution should be warranted in the coming week.
Intermarket divergences are becoming more exacerbated. A strong trend should take most all stocks with it. The indices are not confirming the trend, nor is market breadth that continues to decline with each push higher.
Next week should give us enough information to determine if there is more downside work to accomplish.