Market timer Tom McClellan, publisher of the McClellan Market Report, warned of a “sharp drop” in the stock market “beginning imminently” and continuing for a couple of weeks into January. Among reasons for his view, chart signals suggest the recent rally in the Dow Jones Industrial Average DJIA, -0.25% and S&P 500 SPX, -0.30% to record highs appears to reflect a “blowoff exhaustion”; negative divergence in the advance-decline line, which showed most stocks were declining while the indexes rose; and the fact that the annual seasonal pattern shows a tendency for the Dow to fall during the first two to three weeks of January,
McClellan said in a newsletter sent to clients overnight. McClellan said he’s bearish short-, intermediate- and long-term trading styles. The Dow was up 27 points, or 0.1%, in afternoon trading Thursday and on track for a seventh straight gain and second straight record close. Meanwhile, only two of the Dow’s 30 components — UnitedHealth Group Inc. UNH, -0.23% and Coca-Cola Co. KO, -0.29% — have reached 52-week highs in intraday trading on Thursday, and only eight components have reached 52-week highs this month. For the S&P 500 SPX, -0.30%, which was up 0.1% and in record territory, 12% of its components have reached 52-week highs on Thursday, and 27% have reached 52-week highs this month.