Via Dana Lyons' Tumblr,

The relatively few leaders (aka, “generals”) that had been propping up the indexes are being systematically taken out.

“The way we see it is that the 6-year bull market is running out of steam, the steam being the number of stocks contributing to its advance. This occurs at the end of cyclical bull markets, ala 1999 and 2007. Once the relatively few stocks that are still propping up the market roll over, there is no foundation of support left to prevent a significant decline. This isn’t doom and gloom propaganda. It’s just part of the market cycle and should be something to monitor closely as we enter 2016.” - Conclusion from our final 2015 post (and perhaps a dozen other posts).

The point of our statement above – and all of the warnings we issued regarding the deterioration of the market’s internals over the past year – was that eventually the few stocks that were propping up the major indexes were going to collapse under the weight of that burden. And at that point, there will be no foundation left across the broad market to continue to buoy the averages. Well, since the start of the year, and in particular over the past week, that inevitable reckoning has been unfolding. Those few leaders left standing at the end of 2016, aka the “generals”, have finally succumbed to the selling pressure that preceded them in the rest of the market.

This includes one of the last men standing: the internet sector. The unraveling of the internet stocks is a relatively recent development – and a swift one at that. This is what happens when there are very few areas attracting almost all of the money flow. Once that avenue too is shut off, the reversal can be powerful as all of the inflows attempt to exit at once. Such has been the case with the internet sector. Just 4 days ago, we posted an chart intraday of the Dow Jones U.S. Internet Index, noting the fact that the index was hitting an all-time high. Well, the index gave up its gains of early that day and has been plunging ever since as the selling has finally reached this sector as well.

Coupled with that selloff has been the decline – and loss of key support – by one of the popular internet ETF’s, the First Trust Dow Jones Internet Index ETF (ticker, FDN). On Friday, FDN closed below what we determined to be quintuple support around the $62 level, as represented by the following:

The 23.6% Fibonacci Retracement of the 2009-2015 rally

The 38.2% Fibonacci Retracement of the 2012-2015 rally

The 61.8% Fibonacci Retracement of the 2014-2015 rally

The post-2012 Up trendline

The 500-day simple moving average

In our view, this development sticks a fork in the leadership of the internet stocks, at least as it involves propping up the major averages. It very well may be that it is curtains for the internet bull market as well, but that remains to be seen. The next level of importance on the FDN comes in around $52 (see below) and mirrors the support listed above at $62. Failure to hold there would almost cinch the end of the post-2009 bull market for this fund.

The 38.2% Fibonacci Retracement of the 2009-2015 rally

The 61.8% Fibonacci Retracement of the 2012-2015 rally

The 2015 breakout level

The post-2009 Up trendline

The 1000-day simple moving average

For now, the evidence is pretty clear. We have been offering warning after warning regarding the deteriorating breadth trend and how it was leading to vulnerability to a serious decline in the stock market. The major averages could only resist the selling pressure for so long on the backs of the mega-cap generals. Eventually, the generals would be taken out as well. They are now being taken out.

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